Give full play to the wealth management function of the capital market and promote the formation of pension capital

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**Interviewer**: What is the potential growth for China’s pension system, particularly in the next decade?

**Expert**: Over the next ten years, we foresee a tremendous opportunity for growth in our pension system, particularly within the third pillar, which could exceed 10 trillion yuan. China has established a pension system comprising three main pillars: basic pension insurance, enterprise annuities, and personal pensions. The overall growth of this system has been steady, significantly supporting the retirement needs of residents. As of the end of 2023, the total scale of these three pillars approached 14 trillion yuan, with the first and second pillars accounting for approximately 7.82 trillion and 5.75 trillion yuan, respectively. Importantly, the third pillar, which has only recently begun to develop, is on the rise.

**Interviewer**: How does China’s pension system compare to those of developed countries?

**Expert**: The development space for China’s pension system is substantial. According to the latest data from Willis Towers Watson’s Thinking Ahead Institute, the average pension assets as a percentage of GDP in developed countries is around 71.73%, with countries like the Netherlands and Australia exceeding 100%. In contrast, as of 2023, China’s pension assets represented only about 10.11% of our GDP. This highlights a pressing need for the expansion of our pension scale, especially considering the significant savings held by residents, which reached 139.5 trillion yuan at the end of 2023.

**Interviewer**: With the aging population, what changes do you anticipate regarding the demand for pensions in China?

**Expert**: The rising proportion of the elderly population undoubtedly amplifies the demand for pension funds. By the end of 2023, the number of people over 65 years old in China reached 217 million, accounting for 15.40% of the population. Projections indicate that this figure could exceed 20% by 2032-2035, as the second wave of baby boomers ages. Consequently, expanding the pension scale is an urgent need to ensure that residents enjoy adequate retirement protection.

**Interviewer**: What growth opportunities exist for the third pillar over the next decade?

**Expert**: The potential for growth in China’s pension system is massive, with expectations of exceeding a total scale of 35 trillion yuan by 2035, of which over 10 trillion yuan could come from the third pillar. The first pillar is relatively mature, while the second pillar’s coverage is limited, primarily benefiting state-owned enterprises. The third pillar is still in its infancy, yet it possesses advantageous features such as autonomy, inclusivity, and market-oriented characteristics. This component can become a significant source of national retirement income if further developed.

**Interviewer**: What are the key strategies for enhancing the personal pension system in China?

**Expert**: Accelerating the growth of personal pensions is critical for balancing our three-pillar retirement system. Since the pilot program began in November 2022, over 50 million personal pension accounts have been opened, accumulating 28 billion yuan. To further boost participation, we must optimize system design by learning from the successes and failures of developed nations. This includes expanding the pilot areas, improving incentives, allowing flexible withdrawals, and enhancing account functionalities to increase coverage and attractiveness.

**Interviewer**: How can we ensure that all citizens, particularly low-income groups, can benefit from personal pension systems?

**Expert**: Enriching policy incentives is essential. We can consider financial subsidies for low-income individuals, comparable to Germany’s pension contribution subsidy, which encourages participation. Additionally, diversifying tax incentives can attract middle- and low-income earners who are currently underserved. By allowing these groups to choose flexible tax options, we can improve overall pension coverage and sustainability.

**Interviewer**: In terms of investment strategies, what recommendations do you have for the personal pension sector?

**Expert**: Expanding the investment options for personal pension accounts is crucial. Currently, the investment choices are limited, which does not address the diverse preferences among investors. We need to encourage the inclusion of equities and global assets into the pension investment portfolios to enhance returns. Moreover, developing a comprehensive account system that integrates various financial products can help cater to comprehensive retirement needs and better manage residents’ retirement funds.

**Interviewer**: Thank you for your insights. It seems that with strategic enhancements and wider access, China’s pension system could see substantial growth in the years to come.