Private pension program creates new opportunities

As soon as the private pension program was promoted nationwide in mid-December, Yuan Jinwen, 36, an interior designer in Shanghai, started her research, looking for the bank providing the best incentive or bonus plans for new clients opening such accounts.

Most banks reward such new clients with shopping cards or lucky draws, which may include very alluring cash returns. After doing her homework over a period of a week, Yuan chose Bank of China Shanghai branch.

As she explained, China Construction Bank and Industrial and Commercial Bank of China both provided higher rewards, respectively 676 yuan ($93) and 876 yuan at the most. But BOC finally won her heart because of "a higher bottom line", as it could provide at least 154 yuan in reward for a new client, which is higher than the minimum level of the above two banks.

Although the four State-owned commercial banks were Yuan's top priority, Bank of Jiangsu Shanghai branch also attracted her attention with a "really appealing deposit interest rate" under the private pension account, which was 3.5 percent for a five-year deposit, she said.

Wei Min, 29, a jewelry sales professional in Beijing, was also drawn by the higher deposit interest rates provided by Bank of Jiangsu, which was 4 percent for a five-year deposit and 3.5 percent for a three-year deposit under the private pension account, she discovered.

Public information shows that Bank of Jiangsu's listed interest rates were set at 1.65 percent and 1.7 percent, respectively, for fixed deposits with three years and five years of duration. Such a big difference helped Wei to open her private pension account at this bank.

According to Zhou Haiwang, deputy director of the institute of urban and demographic studies at Shanghai Academy of Social Sciences, the purpose for banks to offer more generous deposit rates under the private pension accounts is clear and simple — winning new clients.

But on the other hand, deposits are also in line with the risk appetite of the clients opening private pension accounts at banks, as they are looking for stable investment methods that include lower volatility and can provide long-term returns, he said.

The private pension program started its trial in November 2022 in 36 major Chinese cities, including Beijing, Tianjin and Shanghai. Under full implementation since mid-December, Chinese employees covered by the nation's basic pension insurance system can voluntarily open their private pension accounts at designated commercial banks and deposit up to 12,000 yuan annually into the accounts. The payments can be made monthly or yearly.

The deposited money can be used to purchase financial products such as wealth management products, commercial endowment insurance, mutual fund products, treasury bonds, designated pension savings and index funds, the latter three of which have been newly included under the program's latest expansion.

According to the national social security public service system, 168 insurance products had been introduced for the private pension program as of the beginning of this year. At least 50 of them were released in the last quarter of 2024.

Insurance products, which can basically preserve the principal, have longer investment terms, include lower risks and can largely meet people's needs in terms of pension investments. The value-added services included in insurance policies, such as health services, can also meet people's needs to secure their retirement years, said experts from Guolian Securities.

If more supportive policies can be introduced, insurance companies can make bigger contributions to the optimization of the private pension system, they said.

Experts from Taiping Life Insurance Co Ltd suggested that health insurance products should also be included in the list of private pension products.

Health expenditure will become a rigid demand after retirement. Compensatory and reimbursement health insurance products can reduce the medical burden of retirees to some extent, providing more protection for people's later life, they said.

Zeng Gang, director of Shanghai Institution for Finance and Development, a think tank, suggested that a unified private pension account management platform should be set up to manage the accounts and products across different financial institutions.