Chinese authorities on Thursday unveiled a private pension scheme that allows employees to save money in pension accounts and invest in financial products, the latest initiative to address the challenges posed by an aging population, Reuters reports.
China in the 1980s has undergone total economic change through the liberal initiatives it has taken. The introduction of a private pension system would not surprise anyone today, given all the efforts made by this country so far to develop economically and to be an important part of the world economy.
Employees will be able to contribute up to 12,000 yuan ($ 1,863) a year to their pension fund, according to the new scheme, the Beijing government said in a document posted on its website, compared to a fixed payment from employer and employee according to the public pension system.
The government will adjust the maximum contribution allowed under the new plan, depending on economic conditions.
The private pension scheme will be introduced in some cities, in the form of a pilot project that will last for a period of one year, after which it will be implemented at national level, according to the document quoted by Reuters.
In order to encourage participation in the private pension scheme, deductions from personal pension contributions will be available for the first time.
One of the challenges for decision-makers will be to persuade citizens to direct some of their investment earnings to a private pension plan. In 2021, the national per capita income in China was 35,128 yuan.
The regulator in the capital markets sector welcomed the new private pension scheme on Thursday, adding that it will act quickly to develop rules that will facilitate the investment of pension funds. Capital markets can help maintain and increase the value of pension funds and proactively address the challenges of an aging society, the China Securities Regulatory Commission (CSRC) said in a statement on its website.
Private pension accounts may be opened with designated commercial banks and financial institutions. The funds in these accounts may be invested in certain financial products, such as wealth management products, deposits and public funds, and investors will bear the associated risks, the document states.
Among those who will be eligible for private pensions are urban employees who already contribute to the pension insurance scheme under the public social security system. If the holder of a private pension dies, his assets may be bequeathed.
Independent consulting firms estimate that the private pension market will grow to at least $ 1.7 trillion in 2025, from $ 300 billion today.
In 20 years, 28% of China's population will be over 60 years old, up from 10% today, making it one of the fastest growing populations in the world, according to World Health Organization forecasts.
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