Pension Photo: IC

China will roll out its private pension system nationwide starting from Sunday, following a two-year trial run conducted in 36 cities and regions across the country, according to a notice jointly issued on Thursday by five government departments, including the Ministry of Human Resources and Social Security.

The scheme is voluntary for individuals and operated in a market-oriented manner with support from national policies, per the notice. The private pension mechanism will complement the country's current pension system consisting of the basic old-age pension, enterprise annuities, and commercial insurance for the elderly, offering another layer of support for the aging population, the Xinhua News Agency reported.

The nationwide rollout of the mechanism includes several key highlights, such as tax incentives for private pensions, a wider range of available financial products and expanded conditions for early withdrawals.

It allows Chinese citizens to contribute up to 12,000 yuan ($1,651) annually into individual pension accounts to buy certain old-age financial products as an additional source of pension income. Unlike standard bank financial products, funds or commercial insurance, these contributions will enjoy preferential tax treatment, Xinhua reported.

The mechanism is a strategic push for the sustainable development of the pension system, and plays a key role in advancing the social security system and fortifying the foundation of pension funds, said Li Changan, a professor from the University of International Business and Economics.

"It will also help raise personal pension levels and address the diverse pension security needs of the public, in light of the nation's aging population," Li told the Global Times on Thursday.

The notice also calls for optimizing the supply of available investment products to help the pension funds grow and maintain their value. 

On the basis of existing financial products, savings deposits, commercial pension insurance, public funds, and other financial products, government bonds, index funds and specific retirement savings will be included.

Adding more product offerings will help attract investors to put money into broad-market index funds, bringing long-term funds into the capital market, helping improve investor structure and boosting investor confidence, according to Li.

Moreover, the new provisions allow for earlier withdrawals under certain conditions. In addition to retirement, individuals facing permanent disability, those who move abroad, and others in specific circumstances — such as those suffering from severe illness, meeting certain unemployment insurance criteria or receiving minimum subsistence allowances — may receive their pension savings in advance.

In November 2022, the government-supported, voluntary and market-oriented pension system was open to qualified citizens in 36 pilot cities and regions including Beijing, Shanghai, Guangzhou, Xi'an and Chengdu, Xinhua reported.

As of the end of June 2024, more than 60 million people have joined the system, nearly doubling the number at the end of the first quarter of 2023, CCTV reported, citing data from the Ministry of Human Resources and Social Security.

The official data showed that as of press time, a total of 857 individual pension products are available for individual participants to choose from, according to media reports.

"While the number of account holders is high now, actual contributions remain low, and issues like product homogenization persist. Achieving high-quality development of the private pension system will require joint efforts from multiple parties," Li stressed.

To address the challenges, the notice urges relevant departments to strengthen oversight, enhance information sharing and ensure the smooth operation of the system. It also stipulates that financial institutions must participate voluntarily and conduct related business in compliance with the law.