(Yicai) April 25 -- China’s pension returns on investment are better than those in many developed countries in Europe and the US and are in a globally leading position, the former chairman of the National Council of Social Security Fund of China, which manages the country’s largest pension fund, the National Social Security Fund, said yesterday

China’s strong pension returns are mainly because prices in the country are relatively stable and the investment products are reasonable, Dai Xianglong, who is also a former governor of the People’s Bank of China, said at the Aged Care China 2025 forum in response to concerns that it is better to pay out accumulated pension insurance premiums in the same year, because managing reserve pensions is too risky.

Between 2000 and 2023, the National Social Security Fund had an average investment return rate of 7.36 percent, with an average annual growth rate of 3.6 percent, according to data provided by Dai. Growth was only negative for two of those years.

The National Council of Social Security Fund manages the basic pension for urban workers with a rate of return of 5.06 percent. From 2007 and 2023, the return on corporate investments was 6.26 percent and from 2019 and 2023, the return on occupational investments was 4.3 percent.

“Even after taking into account 2 percent for inflation, there is a positive return of between 3 percent and 4 percent,” Dai said. 

China’s pension system has a “one fund and three pillar” structure. The “one fund” refers to the National Social Security Fund and the three pillars are basic pension insurance for urban employees, corporate pensions and individual pensions.

In order to get better returns, pension investments should be more concentrated, Dai said. The vast majority of basic pension funds for urban workers are in the form of current or short-term deposits in commercial banks which have an average interest rate of under 1.5 percent, far lower than the National Social Security Council's investment rate of return.

If another CNY3 trillion (USD411.6 billion) from the basic pensions of urban workers is entrusted to the National Social Security Council for investment, the rate of return could reach 5 percent, bringing in an extra CNY100 billion (USD13.7 billion) a year. 

Long-term, value-based and responsible investment is important, Dai said. The capital market is key to growing pension assets. If the National Social Security Fund invests up to 40 percent of its assets in stocks, around 60 percent of its investment returns could come from stocks. By sticking to long-term, value-based and responsible investment, pensions can earn high and stable returns. 

Better actuarial planning of basic pension income and expenditure is also needed, Dai said. The government should set up a pension actuarial system and pension actuarial office as soon as possible.

Corporate and individual pensions have not performed as well as expected, he said. In order to grow the size of the pension pool, it is necessary to improve the system, such as by offering bigger tax breaks for personal pension contributors, and allowing companies without a basic pension plan to set up their own corporate pensions. 

Editor: Kim Taylor