China's State-Owned Enterprises Embrace Annuity Systems

Strategic Insights -

China's State-owned enterprises (SOEs) are embracing annuity systems to secure their employees' retirements. The Ministry of Labour and Social Security has granted annuity licenses to China Everbright Bank, Bank of China, and PICC Property and Casualty Company Ltd, marking a significant trend shift towards non-statutory pension plans. These enterprises will now be able to issue annuities, which pay out investments over a set period, with a third-party trustee overseeing the execution.

Key Takeaways:

  • China Everbright Bank, Bank of China, and PICC Property and Casualty Company Ltd are the first batch of SOEs to establish an annuity system for their employees.
  • These enterprises have been licensed as annuity management trustees, allowing them to oversee other companies' annuities.
  • The government has issued 37 licenses to 29 companies to manage other enterprises' annuities, straightening out the pension management market.
  • Chinese enterprises have accumulated over 100 billion yuan (US$12.4 billion) in annuities in nine months since the government standardized annuity regulations in May 2004.
  • Most enterprises with additional pension funds are adapting to the annuity system, with more planning to introduce the annuity system.
  • The country's first regulations on business annuities became effective two years ago, laying the legal framework for annuity systems.
  • Enterprises are offered a tax waiver for money collected as annuities, if the amount is not more than 4% of their employees' yearly salaries.
  • The Taiping Life Insurance Co Ltd and the Ping An Insurance Co Ltd won approval to run an annuities business in early 2005.
  • It is generally believed China's annuities could exceed 1 trillion yuan when the market becomes fully developed.

Statistics:

  • Chinese enterprises have accumulated over 100 billion yuan (US$12.4 billion) in annuities in nine months.
  • The government has issued 37 licenses to 29 companies to manage other enterprises' annuities.
  • The country's annuities market is expected to exceed 1 trillion yuan when fully developed.

Sources:

  • Ministry of Labour and Social Security
  • China Everbright Bank
  • Bank of China
  • PICC Property and Casualty Company Ltd
  • Institute of Law under the Chinese Academy of Social Sciences (CASS)
  • China Insurance Regulatory Commission