China is expanding its private pension fund pilot program nationwide, effective December 15, in a bid to alleviate mounting pressure on its public retirement system, Bloomberg reports.
The move comes despite significant hurdles encountered during the program’s initial rollout in 36 cities since 2022.
The program, often referred to as the “third pillar” of China’s pension system, allows workers to contribute up to 12,000 yuan ($1,650) annually to tax-sheltered accounts. It aims to address the challenges posed by a rapidly aging population, with projections indicating over 400 million people aged 60 and older by 2035.
While initially generating excitement among global investors like BlackRock, the pilot program has faced setbacks. Disappointing fund performance and low participation rates have hampered growth. Although over 60 million people registered, only 22% made contributions, according to a March report by the Chinese media outlet, The Paper. Combined inflows totaled 28 billion yuan by the end of 2023, though Ping An Securities estimates this more than doubled to 58 billion yuan by the end of 2024.
The government aims to boost participation by expanding eligible investment products to include sovereign bonds and certain index funds, including those tracking the CSI 300 stock index. However, challenges remain. While over 700 million citizens qualify, only a fraction are expected to significantly benefit from the tax advantages. Ping An Securities estimates that fewer than 26.8 million people will see a net gain due to the 3% tax levied on investment returns within the plan, while the low personal income tax burden of many citizens makes participation less attractive.
Further complicating matters, the program’s performance has been uneven. At least seven retirement-target funds, including those managed by an Invesco Ltd. joint venture, have closed in 2024. This expansion comes as China announced a delayed increase in the retirement age, sparking public backlash.
