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Briefing on PRC Private Pension Scheme

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The current landscape of the PRC pension system has been subject to serious challenges in light of the acceleration of aging population across the nation. According to the “China Third Pillar Pension Research Report” released by the Insurance Association of China in 2022, the pension gap is estimated to hit RMB 8-10 trillion in the next 5-10 years, which may further exacerbate over time. In the short run, it is fairly difficult to solely rely on the first two pillars (i.e. the mandatory basic pension scheme, and the non-mandatory enterprise annuity and occupational annuity) to achieve explosive growth in pension contributions to make up for the gap. 

To promote the establishment of a multi-layered and multi-pillared pension system and to propel the sustainable development of the pension insurance regime, on 8 April 2022, the General Office of the State Council issued the Opinions on Promoting the Development of Personal Pensions (the “Opinions”). The Opinions has established the basic system and framework of private pension scheme, which is deemed the third pillar of the entire pension system.

Set out below are some key points in the Opinions:

  • Individuals who have been participating in the basic pension insurance for urban employees or for urban and rural residents are eligible to voluntarily participate in the private pension scheme.
  • Private pension contributions shall be paid by the participant into a pension account set up through a centralized platform.
  • The maximum annual contributions of private pension is RMB12,000 (approximately equivalent to GBP1,450), which may be adjusted by the central government from time to time according to social and economic developments.
  • The government will formulate the relevant ancillary rules and policies to provide tax incentives to encourage participation in the new scheme.
  • The funds contributed into the pension account may be used to purchase certain financial products, such as bank financing, saving deposits and commercial pensions, at the participant’s own risk.   
  • Participants may claim private pensions on a monthly basis, in batches or in a lump sum upon satisfaction of any of the statutory circumstances (e.g. reaching the statutory age for pension collection, having completely lost his/her labour ability, going abroad for settlement, etc.).  
  • The private pension scheme will be piloted in some cities for one year before it is implemented nationwide.

Unlike the first and the second pillars of the pension schemes in which employer’s involvement is required (i.e. both the employer and employee are obliged to pay pension insurance contributions in accordance with statutory basis and rates), contributions under the private pension scheme shall be solely borne by the participants. In other words, the employers have no obligation to make pension contributions under the private pension scheme. In this regard, at this stage employers are not required to take any action in relation to the private pension scheme.