Pension finance: Growing total pension assets and low rates of return

Abstract

China has rolled out a series of policies to promote pension reforms since 2016, including policies related to market-oriented operation of basic retirement funds, interim measures for the administration of occupational annuity funds, and tightened regulation of old age security management services, introducing the concept of retirement fund for the first time at the policy level. With the intensive introduction of policies and the vigorous advance of the market, these policies have accelerated pension reforms and created both opportunities and challenges for the pension system. In 2016, the total assets of enterprise annuities and the national social security fund exceeded RMB 1 trillion and RMB 2 trillion, respectively. However, as the rate of return in capital markets continued to decrease, the return on the assets of enterprise annuities and the national social security fund hit the lowest in the last five years. The assets of basic pensions managed by custodians designated by the government were lower than expected. Looking to the future, the pension finance will mainly focus on the expansion of the national social security fund, the investment and management of occupational annuities and the development of pillar 3 personal pensions. The size of the pension market will further increase and demonstrates the following structural characteristics: enterprise annuities will grow slowly; the assets of basic pensions managed by custodians will be less than predicted; the national social security fund and occupational annuities will witness bigger development. In addition, as macro-economic uncertainties increase, the difficulty in managing pension assets will continue to grow, and annuity councils will face the challenge of upgrading. Factors such as investment performance and comprehensive service capabilities will become main driving forces for pension management institutions.