CICC: China’s personal pension system is launched, and the capital market is expected to introduce new types of long-term investors

Source: CICC Strategy

Author: Li Qiusuo Wang Hanfeng

Today, the General Office of the State Council issued the “Opinions on Promoting the Development of Individual Pensions” (hereinafter referred to as the “Opinions”). We briefly comment on this as follows:

The personal pension system has ushered in an important breakthrough, focusing on six aspects : 1) workers participating in the basic pension insurance for urban employees or basic pension insurance for urban and rural residents may participate in the personal pension system; 2) individual pension or the implementation of the personal account system, payment 3) The state formulates preferential tax policies; 4) The annual upper limit for participants to pay personal pension is 12,000 yuan; 5) The funds in the personal pension fund account can be used to purchase financial products that meet the regulations , the details can be chosen by the participants; 6) Individual pensions will be implemented step by step according to the actual situation, and some cities will be piloted for one year, and then gradually rolled out.

The establishment of the individual pension system will help improve China’s pension security system, the capital market is expected to introduce new types of long-term investors, and the system construction is expected to improve the current market’s cautious expectations to a certain extent .

The personal pension system has ushered in an important breakthrough, focusing on six aspects

Combined with the content of the “Opinions”, we believe that the construction of this personal pension system deserves to focus on the following aspects:

1) Scope of participation. Workers who participate in the basic pension insurance for urban employees or the basic pension insurance for urban and rural residents in China can participate in the individual pension system.

2) How to participate. The individual pension system adopts an individual account system, and the contributions are entirely borne by the participants and are fully accumulated. Participants establish personal pension accounts through the personal pension information management service platform. Individual pension fund accounts can be designated or opened by participants in compliant commercial banks, or through other compliant financial product sales agencies.

3) Policy incentives and restrictions. The state formulates preferential tax policies to encourage qualified personnel to participate in the individual pension system and receive individual pensions in accordance with regulations. However, the funds in the individual pension fund account shall not be withdrawn in advance unless otherwise specified.

4) Payment level. The upper limit of individual pension contributions for participants is 12,000 yuan per year. The Ministry of Human Resources and Social Security and the Ministry of Finance will adjust the upper limit of contributions in a timely manner based on factors such as the level of economic and social development and the development of the multi-level and multi-pillar pension insurance system.

5) Investment method. The funds in the personal pension fund account are used to purchase financial products that meet the requirements of different investors, such as bank wealth management, savings deposits, commercial pension insurance, and public funds. The operation is safe, mature and stable, and the target is standardized. Independent choice. The financial institutions and financial products involved in the operation of personal pensions are determined by the relevant financial regulatory authorities and released to the public through information platforms and financial industry platforms.

6) Promote implementation. Individual pensions will be implemented step by step based on the actual situation, that is, select some cities for a one-year trial, and then gradually roll them out.

The establishment of individual pension system is helpful to improve my country’s pension security system

At present, China’s social security system has established a three-pillar framework : first, the basic pension insurance, which is led and managed by the government, constitutes the first pillar of the pension system for employees; Supplementary endowment insurance) constitutes the second pillar of the employee endowment security system; third, commercial life insurance voluntarily purchased by groups or individuals constitutes the third pillar of the employee endowment security system. The construction of this individual endowment system is mainly based on the third pillar. complement and refinement. Judging from the current development situation, the scale of the three pillars is not balanced. The social insurance funds of the first pillar still occupy an absolute proportion. The cumulative balance of social insurance funds in 2020 is 9.4 trillion yuan. The scale of the second and third pillars too small. The establishment of the personal pension system is expected to complement and improve my country’s pension security system from the third pillar, which is of positive significance for China’s current situation of accelerating aging and fading demographic dividends.

Capital market is expected to introduce new types of long-term investors

According to the data of the Ministry of Human Resources and Social Security and the National Bureau of Statistics, as of 2020, the number of people participating in the basic urban pension insurance and the pension insurance for urban and rural residents are 450 million and 540 million respectively, indicating that the population base that can participate in the individual pension system is relatively wide. According to the current regulations, the upper limit for participants to pay individual pensions per year may be 12,000 yuan. This means that from a long-term perspective, the size of individual pension accounts is expected to exceed one trillion yuan. In terms of investment methods, the optional types include financial products such as bank wealth management, commercial endowment insurance, and public funds. On the one hand, the system construction is conducive to the development of new businesses such as relevant banks, insurance, and public funds. On the other hand, it is also expected to provide capital for capital. The market brings a new type of long-term investor. Judging from the experience of mature markets such as the United States, the establishment of old-age insurance systems such as the 401K plan in history has brought long-term funds to the US capital market and played a good supporting role in the long-term stable development of the US stock market.

Institutional construction is also expected to improve the current market’s cautious expectations to a certain extent

Since the beginning of the year, the capital market has been underperforming due to multiple internal and external factors. On March 16, the Financial Stability and Development Committee of the State Council held a special meeting to study the current economic situation and capital market issues, and mentioned that “long-term institutional investors are welcome to increase their shareholding ratio”, We believe that the construction of the personal pension system will help to cultivate and develop long-term institutional investors for the capital market, and will also help to improve the current market’s cautious expectations to a certain extent . At present, the cumulative market correction time is long and the magnitude is not low. The valuation has been relatively low in history, and the negative factors both internal and external have been reflected from the asset price. We judge that the market is in the “grinding period” after the rapid correction in the early stage. It is not appropriate to be overly pessimistic about the medium-term prospects of the market. The medium- and long-term opportunities of the market gradually outweigh the risks.

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