Battle’s on: fierce competition expected as Chinese regulators set the stage for private pension scheme

Official implementation framework announced this month expands investible universe for China’s private pension scheme, allowing more products and fund managers a slice of the trillion-dollar market.
Battle’s on: fierce competition expected as Chinese regulators set the stage for private pension scheme

The competition has officially kicked off for financial institutions that want to take part in China’s newly established private pension scheme, as regulators released the official guidelines earlier this month. 

Five of the nation’s central government bodies and regulators – the Ministry of Human Resources and Social Security, Ministry of Finance, State Taxation Administration, China Banking and Insurance Regulatory Commission (CBIRC), and China Securities Regulatory Commission (CSRC) – jointly announced on Nov 4 the implementation document of China’s private pension scheme after five months of public consultation. 

After the State Council announced in April that China would launch the “third pillar” of the country’s pension system, a private pension scheme, the most recent document marks the stage where the regulatory framework is in place and the public can soon start to open private pension accounts.

China's three-pillar pension system (2020)

The document specifies operational models including account management, tax structure, and withdrawal mechanism. 

As foreshadowed, the maximum annual contribution remains at Rmb12,000 ($1,702), which enjoys full tax exemption under an “EET” model, meaning contributions and investment income are tax-exempt while maturity values are taxable. Each individual can only open one private pension account, which must be managed by a bank. 

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“We recognise the growing demand for financial security from China’s rapidly aging population. The latest announcement offers more details on the operations and tax incentives for employers, employees and the financial-services industry to participate in China’s personal pension scheme,” said Lilian Ng, managing director, strategic business group at Prudential. 

Lilian Ng,

The firm is set to go head-to-head against financial institutions such large state-owned banks, mutual fund managers, as well as other major Chinese insurers such as China Life and Ping An, and other foreign insurers who have businesses in China, including Allianz and Manulife.

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"In accordance with the new guidelines, we will continue to make retirement funding products more accessible to more customers," Ng told AsianInvestor. 

The British life insurer's China business is managed through the CITIC Prudential Life joint venture, in which Prudential owns 50% stake.

New CBRIC guidance about insurers’ participation in the private pension market indicated that about 20 insurers in China are now eligible to participate.


Major updates of the implementation document were included for the mutual fund space as compared with a draft released on June 24, for example lowering the managed-assets threshold for mutual fund managers and paving the way for future inclusion of riskier investment products. 

The new policy allows pension funds of funds (FoFs) with no less than Rmb200 million ($28.4 million) of assets under management (AUM) by the end of previous quarter to participate, meaning pension products that were newly launched can also be part of the private pension scheme. The June 24 consultation paper proposed that only pension FoFs with no less than Rmb 50 million of AUM over the last four quarters were qualified to be included into the scheme. 

According to industry analysis, as of the end of September, a total of 116 and 142 pension FoFs respectively met the old and the new requirements. The 142 FoFs run by 45 mutual fund managers in China in aggregate manage Rmb92.7 billion ($13.2 billion) of assets. 

Moreover, the document also specifies that bond funds, stock funds, and hybrid mutual funds are also eligible.

“Previously, the market was only anticipating pension FoFs to be eligible for the private pension scheme. But the official document expands the investible products, which allows more fund managers to participate in the market. So the competition will be even fiercer,” a spokesperson for China Asset Management (ChinaAMC) told AsianInvestor.

ChinaAMC manages nine pension FoFs now eligible to join the private pension framework, the most in China. It is followed by China Universal Asset Management and Southern Asset Management, which each run eight. 

In the joint venture space, currently, Bank of Communications Schroder Fund Management manages the largest pool of assets, while BlackRock is the only wholly foreign-owned mutual fund manager in China, which opened for business in 2021. 

In the Nov 4 announcement, the CBIRC said it will announce the first batch of market players that can operate pension businesses under the scheme in due course. 


“In general, we view the inclusion of broader financial institutions positively. On one hand, it will motivate different types of financial institutions to leverage their unique expertise in private pension market. On the other hand, it will lead to stronger emphasis on innovation and market education, which should benefit end clients,” said Leo Shen, head of China fund management at Allianz Global Investors.

Leo Shen, 
Allianz Global Investors

“For example, banks, in general, have best client reach and profiling, while asset managers could provide support from a top-down pension asset allocation and also product perspective,” Shen told AsianInvestor.

“Insurance products, bank savings, and pension wealth management products with lower risk profiles could all be meaningful supplemental elements in an individual pension portfolio,” he added. 

Under the private pension scheme, banks will have multiple roles as the account manager, as well as pension investment consultant and distributor. 

“The market expectation is that in the early stage, banks and insurers, especially banks’ wealth management arms, will enjoy substantial growth,” said the ChinaAMC spokesperson. 

“Banks are the entry point of business volume as the sole pension account manager, which gives them an edge in customer channelling,” he said. “As the general public in China doesn’t have sufficient knowledge of asset and wealth management, banks will play a crucial role in their decision-making process.”

ChinaAMC expects the private pension market share of mutual funds to surpass banks in the long run after savers see the advantages of fund management companies over banks and insurers. Long-term returns from mutual funds – over a period of decades – are higher as it consists of more risky assets, the firm said.

Generally, pension products run by insurers and banks are savings or income-type products with little chance of losing principal and low-single-digit annual returns.


“The key at this stage is to strengthen investor education as well as the company’s capability in retail sales channelling,” the ChinaAMC spokesperson said. Apart from competition with other financial institutions, the firm believes that the Chinese people’s, and especially the younger generation’s, lack of knowledge and willingness to save for retirement is the key challenge for the entire industry. 

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Against the backdrop of China’s rapidly aging population and China’s high overall saving rate, market demand will undoubtedly be significant in the long run, noted AllianzGI’s Shen.

“It may take time, however, for the market to realise its potential. Market promotion and investor education are essential for mass retail investors to understand and accept the idea of investing in a private pension scheme, especially at an early stage.”

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