China Life Pension, a subsidiary of the mainland’s biggest life insurer, has implemented DST’s middle- and back-office portfolio-valuation system as it develops its relatively new investment-management activities.

The firm has chosen DST Global Solutions’ HiPortfolio system, because the vendor is also providing its software to other group companies, says Yong Wang, head of IT at China Life Pension in Beijing. The system will enable it to perform valuations of the investment portfolios, which will help automate reporting and integrate the accounting process between the finance division and the firm’s custodian banks.

For the front office, China Life Pension – which focuses on enterprise annuity (EA) schemes – is using investment-management systems provided by local companies such as Hundsun Technologies. It is not employing any foreign vendors for the trading system.

Wang declined to give any details on the investment strategies of China Life Pension, which has pension assets under management of Rmb96 billion ($15.2 billion), as of the end of last year.

In China, insurers are allowed to invest EA funds into bank deposits, central bank bills, government treasuries, bonds issued by state-owned enterprises, convertible bonds, new initial public offering stocks and equity funds. 

Set up in late 2006, China Life Pension was initially only licensed to act as a trustee and account manager for EA funds. It provided such services chiefly to its shareholders and other companies in the group, such as China Life Insurance and China Life Asset Management.

In 2010, the firm was awarded a licence by the government to serve as an asset manager for occupational pension funds. It has since been able to make independent investment and trading decisions on behalf of its EA funds.

Private pension schemes only started to appear in China after government reforms in 2004. The five large private pension insurance companies that have contributed data – including China Life Pension and Ping An Annuity – received combined contributions from EA schemes totalling Rmb41.05 billion for 2011, according to the China Insurance Regulatory Commission. Their assets under management for that year totalled Rmb132.5 billion.   

In China, enterprises are encouraged by the government to offer such corporate pension programmes for their employees as a form of supplementary optional retirement scheme in which employees can participate on top of state social-security payouts when they reach retirement age (60 for men, 50-55 for women).

However, the country’s stretched pension reserves and fast-growing elderly population means elderly citizens, particularly those in rural areas, are often not covered by any state funds.  

Moreover, private pension schemes account for very little of the entire retirement funds needed by the country’s 185 million people aged 60-plus (13.7% of the population). The World Bank estimates that the ratio of the population that is over 60 will reach 15% by 2015, and 18% by 2026.

There is a funding gap of Rmb18.3 trillion ($2.9 trillion) that needs bridging by 2013 to satisfy the population’s retirement needs, according to a Bank of China research report widely cited this year by local media.