A new era of China’s pension system

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In 2022, China’s pension reform achieves a breakthrough by officially launching the tax-deferred individual retirement account (IRA) system, thus complementing its three-pillar pension system. While the year of 2022 will be remembered for the introduction of the IRA, all sectors of the industry saw growth.

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Download China Pension Report 2023: Pillar three, Year zero

G iven the importance of this development, most of this year’s report will be focusing on the third pillar. We will list the aspects of its design we consider important to the industry’s future growth and review the development of other sectors. We will finish the report by giving our predictions on some of the key issues we find important to the future of the industry. Our three key takeaways from the development in 2022 are:

1. The launch of IRA marks the establishment of a three-pillar pension system in China, which is the most important development in years and the most sweeping change since the launch of the Public Pension Fund (PPF). Not only the new arrangements encourage, if not urge, more than one billion people in China to start their individual pension saving, they also ensure different types of service providers to compete on a level playing field.
2. Fund managers and banks are so far the most active contenders, but others will follow through quickly. The allure of the reward may lead to intense competition. This is already evidenced by the quick pursuit of the new opportunities by banks and asset managers. We expect insurers and Wealth Management Companies (WMC) to respond with a more competitive approach soon .
3. Change your pace if you see yourself in the end game. While the initial result is encouraging, it is but a fraction of the long-term dividend can be expected. With the fast development will come the rapid change across consumer demand, regulatory framework and competitive landscape. Service providers now need to increase their pace.

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Summary

The introduction of IRA provides a large enough market, and in the face of long-term dividends, fund managers, banks, insurers, and wealth management companies should actively try different strategies. Now the competition has just begun.

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EY-Parthenon Partner, Strategy and Transactions Sector, Ernst & Young Transaction Limited

To help billions of people prepare for a better financial future by working closely with our clients on the most strategic issues.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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