Workers to pay income tax for annuities

BEIJING -- Chinese workers will be allowed to pay income tax for their annuities based on the actual amounts they receive after retirement starting in early 2014, an official statement said Friday.

The move, jointly announced Friday by the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Administration of Taxation, aims to "promote the development of the country's multi-tiered pension system."

In China, an annuity is a kind of non-compulsory insurance paid by both companies and workers to offer additional guarantees for workers' lives after retirement. It is a supplement to China's basic old-age pension.

Currently, workers enjoying annuities have to pay income tax on them before receiving their monthly salaries.

Under the new policy, employees will not have to pay income tax on the portion of the annuity paid by the employer when receiving their monthly salaries.

The portion of the annuity paid by employees each month will be deductible from their taxable income if the annuity amount is no more than 4 percent of their average monthly salary in the previous year, according to the statement.

Workers also will not have to pay income tax when earnings from annuity investments are distributed to their personal accounts.

According to the policy, which will become effective on January 1, 2014, income tax should only be paid after workers retire based on the actual amount of annuity they receive each month.

In 1991, China announced its goal of building a multi-layer pension system that combines the compulsory basic old-age pension, supplementary pensions (or annuities), and privately purchased insurance.

Chinese enterprises can decide on their own whether to pay annuities for employees.

At present, less than 10 percent of employees are included in the annuity system.