China launches first private pension scheme

As China struggles with a rapidly aging population, it launched its first private pension scheme in 36 cities, allowing individuals to open retirement accounts at banks to buy pension products ranging from deposits to mutual funds.

The announcement came on the Chinese version of the IRA, or Individual Retirement Accounts in the United States, a private pension scheme that offers tax advantages for individuals saving for retirement.

Local domestic workers covered by China's public pension insurance can be included in the private pension scheme and contribute up to 12,000 yuan $1,680 per year to their individual accounts and receive tax benefits as part of the new system.

BlackRock and Fidelity have boosted their presence in China in recent years, partly lured by its nascent private pension sector, which is expected to surpass $1.7 trillion by the year 2025, from $300 billion now.

In the future, we will launch funds that meet the demand of investors with different age profiles and retirement priorities, said Andrew Wang, chief executive of UBS SDIC Fund Management, a joint venture between UBS and China's State Development Investment Corp.

UBS SDIC Fund Management currently has one mutual fund that qualifies for the private pension scheme, among a total of 129 funds provided by 40 Chinese and Sino-foreign fund houses.

Eddy Wong, Chief Executive of China International Fund Management CIFM a joint venture between JPMorgan and Shanghai International Trust Co. said China's individual pension market has huge potential and room for development. One of the priorities for the firm is to bring innovative pension product designs to the market, for which his team is leveraging global experience with on-the- ground research to offer retirement solutions with local characteristics.

The majority shareholder of the fund house and China's national steel champion, Hwabao WP Fund Management, has set its sights on retirement investors within Baowu, China's national steel champion, with more than 45,000 employees, according to Warburg Pincus' China venture, Hwabao WP Fund Management.

The staff of Baowu will be our starting point and we plan to expand coverage to employees of all firms in the steel industry," said Wu Liang, Shanghai-based general manager of the internet finance department at Hwabao WP FM.

Chinese and global insurers and fund houses have been developing and promoting products for the local pension market, while local banks are offering incentives to open accounts as they try to tap into a new market.

Howhow Zhang, Greater China's wealth and asset management strategy and transactions leader, said that the first movers in China's pension market enjoy an advantage.

According to Zhang, "We think Chinese retail investors have a learning curve to climb, and that education efforts will fall on the shoulders of asset managers and distributors."