The Chinese pension system is facing a massive upheaval: In future, employees will be able to provide for old age with the first private fund in the People’s Republic, as the authorities announced on Thursday. This should help to cope with the growing problems of the rapidly aging population. According to this, employees can pay up to 12,000 yuan (1,725 euros) per year into the pension fund in the future.
For comparison: in 2021, the average disposable income per capita was 35,128 yuan. The system will first be tested in some cities for a year before it is to be introduced nationwide, as the government announced in a strategy paper. So far, both employees and employers have paid fixed amounts into the state pension fund.
Great potential for financial industry
The reform should also spur foreign insurers and wealth managers to accelerate their expansion in the world’s most populous country. Independent consulting firms estimate that China’s private bond market will grow to at least $1.7 trillion by 2025.
“In the medium to long term, the new policy will benefit the retirement savings market by helping to accumulate more retirement income, increase residents’ retirement provision and raise investment awareness,” said the head of China fund management business at Allianz Global Investors in Shanghai , Leo Shen, the Reuters news agency. Allianz was given the green light last year to create the first fully foreign-owned life insurer asset manager.
China is aging fast
In 20 years, 28 percent of China’s population will be over 60 years old. Currently it is only 10 percent. According to the World Health Organization (WHO), China is one of the fastest aging countries in the world. The program now announced should benefit China’s financial market “as it provides an additional source of long-term capital,” Shen said.
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