Poor returns appear to have dampened public appetite for a tax-beneficial retirement savings scheme introduced in China at the start of this year amid high hopes.

Total assets under management into the enterprise annuity scheme – China’s version of the 401(K) in the US – increased just 4.5% in the first quarter of this year to stand at Rmb630.6 billion ($101 billion).

That was consistent with a 4.16% expansion in the fourth quarter of last year, before the incentive scheme had even been launched this January, notes a report released by China’s Ministry of Human Resources and Social Security last week.

The scheme enables savers to defer individual income tax on voluntary contributions to their enterprise annuity of up 4% of monthly salary. It was introduced this January under the existing defined contribution pension scheme, launched in 2004.

Analysts have been especially optimistic on the tax scheme. Ping An Securities has previously estimated that enterprise annuity assets could double to Rmb1.3 trillion by 2016, while Shanghai-based consultancy Z-Ben has forecast growth of 30% per annum between 2015 and 2020, to Rmb4 trillion.

“Growth looks organic in the first quarter,” conceded Ivan Shi, senior manager at Z-Ben, although he maintained the scheme could still meet previously issued estimates.

In the first quarter of this year, the number of participating employees in the scheme increased 2.7% to 211 million, and the number of participating enterprises rose 3.3% to 68,324.

The slow asset accumulation could be attributable to poor returns, which in the first quarter stood at an average 1.35%, with 92% of the portfolio recording a return below 2%.

That compares unfavourably with the 5% expected annualised return for wealth management products, with 4-5% also for money-market funds.

Another factor could be that it takes time for employees to learn about the benefits of the scheme and for employers to develop an enterprise annuity scheme.

But Z-Ben’s Shi notes that the tax incentive scheme is just a first step, with authorities expected to introduce further measures to support enterprise annuity growth.

“The replacement ratio in China’s basic pension is low, so more tax incentives are needed,” says Shi. The current replacement ratio in China is about 50%.

One such policy is widely forecast to be an increase in the deferral tax cap. Another is the inclusion of wider sections of the public sector in the enterprise annuity system. There are 315 million public sector employees.

Last month, China’s State Council released new regulations requiring employees of public institutions to pay for pension insurance cover for the first time.

Shi sees the move as a step towards including public sector workers in the enterprise annuity programme. “The details of the regulations have not yet been revealed, but if public institutions are required to pay for the enterprise annuity scheme, AUM growth will be faster,” he added.

Ping An Annuity is the largest enterprise annuity fund manager with Rmb85 billion in AUM, as of this March. It is followed by China Life Pension, Taikang Asset Management and ChinaAMC with Rmb74 billion, Rmb56 billion and Rmb53 billion in AUM, respectively.