Market observers are optimistic that China is set to roll out a tax-deferral incentive scheme for insurance products under the individual retirement savings programme after ironing out technical issues.

The State Council gave no details on how or when the change would occur when it announced last week that it would permit tax-deferred insurance products.

But Andy Ng, EY’s Greater China partner and insurance leader based in Beijing, expects the scheme to be implemented next year and to follow the template set down via a pilot programme announced in Shanghai last year.

“The policies have been discussed for some time and Shanghai’s pilot already provides a foundation for implementing a nationwide system,” said Ng, although the Shanghai pilot scheme eventually ran into difficulties and was not implemented.

Under tax-deferred incentives, contributions made into insurance retirement products are excluded from individual income tax until investors draw their pension.

The pilot scheme would have allowed savers to defer tax on investments in insurance products of up to Rmb1,000 ($162) per month. It covers most insurance products.

One problem the pilot scheme ran into was the extra administrative burden it placed on employers, who are required to calculate and deduct tax for their employees, noted Leslie Mao, director of investment services for mainland China at consultancy Towers Watson.

Employers would find it difficult to track workers’ individual investments, which would be especially problematic when employees changed job, he added.

However, insurance firms have since said they have tackled most of the problems and have now sufficiently developed product ranges. “I feel like they are almost ready for the system,” Mao said.

He expects demand for the tax incentive scheme to be driven by China’s burgeoning middle class.

The introduction of deferred tax incentives for insurance products would follow a similar scheme for enterprise annuities introduced in January. Employees are allowed to defer income tax on up to 4% of their monthly salary if they make voluntary enterprise annuity contributions.

The China Insurance Regulatory Commission forecasts that by 2020 insurance premiums will amount to 5% of total GDP, or Rmb3,500 per person. Xinhua News Agency reported that this would amount to premium revenue of Rmb4.55 trillion, up from Rmb1.72 trillion at the end of 2013.