China is likely to allow financial institutions to invest
individual pension funds in more fields with market risks,
including securities fund products, in a bid to increase their
value, a Ministry of Labor and Social Security (MLSS) official has
revealed.
The authorities have completed the procedure of soliciting
public opinions and will submit a draft to the State Council soon,
said Chen Liang, a MLSS department director.
The government will extend the scope of investment with
individual pension accounts by allowing managers of the fund to buy
fund products and financial bonds, he said.
At present, individual pension account funds are primarily
invested in low-risk bank deposits and national bonds.
The scheme will stipulate a decision-making and risk-control
mechanism to preserve and increase the value of the individual
pension accounts, said Chen, adding that it would set a minimum
custodian fee to avoid vicious competition among fund managers,
according to the sources.
Chen Liang said the scheme is aimed at reducing the pension fund
deficit.
The provincial governments will be responsible for hiring
financial institutions to manage the pension funds and organize a
panel of experts to decide investment strategies and distribution
of proceeds, he said, adding that the proceeds would be publicized
on a regular basis.
He did not say what would happen if the investments fail to be
profitable.
China's pension system is still in transition. The basic
structure of the revised system is a mandatory two-pillar pension
comprising a "social pension" financed by employers plus
"individual accounts" funded by both employer and employee
contributions.
Before China began its pension reform in the 1990s, people
depended on the state to contribute to their pension accounts; they
were, in fact, paid by working population.
Experts predict that funds will swell by 100 billion yuan
(US$13.3 billion) a year as China's pension reform deepens.
However, according to the MLSS, the nation's pension funds
suffered a deficit of 900 billion yuan by the end of 2006. Thus,
proceeds from the new policy are unlikely to solve China's specific
pension problems and the country is under mounting inflationary
pressure with an increasing aging population.
(Xinhua News Agency October 26, 2007)
