Prudential calls for more incentives to boost China private pension industry

The British life insurer expects China’s private pension scheme to offer decent upside for its onshore insurance entity and is steadily growing its personal pension business.
Prudential calls for more incentives to boost China private pension industry

Prudential is calling for the Chinese government to allow more banks to be eligible for the country’s private pension scheme, while offering more tax incentives to encourage participation.

The British life insurer offers personal pension products in China through its insurance joint venture CITIC-Prudential Life Insurance Company. It sees the private pension business, or the third pillar, as an important part of its China onshore businesses.

However, it is stipulated by the central government that all personal pension accounts can only be opened at 23 designated banks in 36 cities.

Lilian Ng, 

Lilian Ng, managing director, strategic group at Prudential hopes the government can appoint more banks, especially smaller, regional banks across different Chinese cities to offer private pension services.

Ng is responsible for the insurer’s Greater China insurance operation. She told AsianInvestor that it will be easier for CITIC-Prudential’s agents to build distribution relationships with regional banks.

The current 23 designated banks include six state-owned banks, such as Bank of China and Industrial and Commercial Bank of China; 12 nationwide joint-stock commercial banks, such as China Everbright Bank; and five regional banks, such as Bank of Beijing.

Allowing private pension accounts only managed by banks makes them the entry point of business volume, which gives them an edge in channelling customers.


Even so, Prudential expects the new scheme to open the door for financial institutions - both domestic and foreign ones – to China’s trillion-dollar household savings.

“Retirement is a big priority for the Chinese authorities… That (pillar three) is where companies like Prudential can play a significant role. Because it's clear that consumers will not have enough money for their retirement years,” said Anil Wadhwani, chief executive officer of Prudential.

Anil Wadhwani, 

Wadhwani said the initial response the firm got from clients has been quite positive since the scheme was officially launched in late 2022.

“As we go through 2024 and beyond, I think that's an area that is likely to offer us great potential and great opportunity,” he said during Prudential’s annual result press conference lately.

In December 2023, the British insurer announced an additional Rmb1.25 billion ($173 million) in cash invested into its 50-50 joint venture CITIC-Prudential.

The firm started offering private pension products in the last quarter of 2023, when the insurer helped about 4,000 clients open retirement saving accounts in cooperative banks.

ALSO READ: China's new private pension scheme opens up Chinese assets to foreign insurers

Considering the smooth beginning in 2023, Prudential’s Ng said the market expects the scheme to cover all Chinese cities in 2024.


Meanwhile, Ng believes the industry will keep communicating with the government for a higher amount of tax exemption.

The scheme currently limits the maximum annual contribution at Rmb12,000 ($1,669), which enjoys full tax exemption.

In 2023, the national household’s income was Rmb39,218 ($5,423), up 6.1% from 2022.

Compared to the household income, the tax relief for personal pension is not enough, said Ng.

The industry has been calling for stronger tax incentives for the private pension plan as the dominating national pension fund, or the first pillar, is expected to dry up by 2035, according to academic studies.

Under the current private pension scheme, contributions and investment income are tax-exempt, while maturity values when members draw money from the account after they retire are subject to 7.5% tax, which had been decreased to 3% in 2022 when the personal pension plan was introduced.

This policy also becomes an effective incentive for residents to contribute to the scheme, Ng noted.

According to China’s Ministry of Human Resources and Social Security, over 50 million people have opened personal retirement saving accounts as of the end of 2023, without disclosing actual contribution amount.  

The latest data available from the ministry as of end-June 2023 showed that only Rmb9 million had been contributed from a total of 40.3 million accounts back then. This equated to just Rmb2,022 per account - much lower than the Rmb12,000 contribution threshold.

China’s pension system is under enormous pressure with a fast-aging population - the country’s population started decreasing in January 2023.

At the same time, the younger generation shows little willingness to save for retirement, which is seen as a key challenge for the pension industry.   

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