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22 February, 2023

China: the country advances in the implementation of a voluntary capitalization pension program

On November 25, China’s government launched a third-pillar private pension program in 36 cities to complement the country’s first-pillar state pension and second-pillar occupational pension programs. The government first announced the framework for the third-pillar program in April 2022 after implementing a pilot program in select cities in September 2021. The third-pillar program is intended to boost voluntary retirement savings among China’s workers as the country faces growing economic challenges from rapid population aging. With its relatively low retirement age (60 for men, 55 for women white-collar workers, and 50 for women blue-collar workers) and declining fertility rate (1.16 children per woman in 2021), China is expected to see its working-age population shrink by around 35 million individuals from 2021 to 2025. As a result of these trends, the government projects the ratio of retirees to workers in China to rise from 17 percent in 2020 to 33 percent in 2035.

The latest details of the new third-pillar pension program include:

  • Eligible workers: Individuals covered by the first-pillar state pension programs can choose to participate in the third-pillar program. At the end of 2021, the first-pillar programs covered 1.03 billion individuals.
  • Account setup: A participant can have one personal pension account under the third-pillar program. The account must be opened using the Personal Pension Information Management Service Platform, which tracks contributions, investment earnings, payments, taxes, and other transactions.
  • Account contributions: Participants can contribute up to 12,000 yuan (US$1,739.45) annually to their personal pension accounts. (There are no employer contributions.) The contribution ceiling may be adjusted in the future by the Ministry of Human Resources and Social Security and the Ministry of Finance based on socioeconomic factors.
  • Tax incentives: To encourage participation, the government offers an annual tax deduction for contributions up to 12,000 yuan and a reduced tax rate on pension benefits (reduced from 7.5 percent to 3 percent). In addition, a participant’s investment gains are not taxed.
  • Investment options: Participants can invest their savings in products that meet certain standards, including having clear investment strategies and focusing on long-term performance. These products can include target date funds (with assets under management of at least 50 million yuan [US$7.25 million]), mutual funds, equity funds, bond funds, and insurance products. Pension industry sources forecast that third-pillar program investments could result in China’s private pension market growing from the current US$300 billion to US$1.7 trillion by 2025.
  • Benefits access: Participants can make withdrawals from their account once they have reached the normal retirement age, lost the ability to continue working, or left China. Funds can be withdrawn as a lump sum or in monthly installments.
  • Inheritance provisions: If a participant dies before reaching the normal retirement age, their account balance will bequeath to their designated heirs.
  • Program administration: The China Banking and Insurance Regulatory Commission oversees the commercial banks and wealth management companies that administer the personal pension accounts. Separately, the China Securities Regulatory Commission regulates the investment products that can be offered to participants.


Besides third-pillar pensions, China’s pension system consists of: (1) separate first-pillar programs for urban employees, and rural residents and nonsalaried urban residents, which are administered at the provincial and local levels; and (2) second-pillar occupational pension programs that primarily cover employees of large state-run enterprises. The first-pillar programs for urban employees generally include a social insurance pension funded by an employer contribution of up to 20 percent of payroll, and a mandatory individual account funded by an employee contribution of 8 percent of gross covered earnings. The first-pillar programs for rural residents and nonsalaried urban residents generally include a noncontributory pension funded by the central and local governments, and an individual account funded by personal contributions. The second pillar consists of voluntary employer-sponsored occupational pensions.

Source: International Update January 2023.

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