China seeks retirement guidance from Pensions Trust

UK/China - A delegation of Chinese government officials has met with officials at the UK's Pension Trust to discuss how it might apply lessons learned from the European management of retirement provision.

A party of 13 Chinese officials arrived in the UK last week as part of the EU-China Security Reform Co-operation Project, designed to help the Chinese government improve its current financial policy and provide to a sustainable social security system for the future.

Executives of the Trust shared their experiences of how the firm provides outsourced pensions management and trustee services to small and not-for-profit organisation seeking to provide its employees with a work-related pension.

More specifically, the delegation - made up of Chinese ministry of labour and social security officials as well as social security directors from several Chinese provinces - is visiting selected organisations, including the government ministry for work and pensions, The Pensions Regulator (TPR) and the Financial Services Authority (FSA), until the end of this week, to find out how occupational pensions arrangements are regulated and supervised, as well as understand the management and regulation of public pension provision.

Among the issues this delegation is considering in how the Chinese population might encourage the development of occupational pensions in its bid to manage the rising financial cost of old-age pensions.

Any shift to try and introduce occupational pensions in China could be complicated as the existing pensions regime is still somewhat restricted in terms of access to suitable financial instruments and reform is expected to take some time.

Investment markets in China are still considered to be underdeveloped for the growth of an occupational pensions sector as funds are still restricted to investing in domestic assets and while the market for listed stocks has grown in recent years, liquidity is still limited because state entities still have high equity holdings, while there is also no uniform tax policy to encourage companies to set up occupational pension schemes.

That said, creation of the EU-China Co-operation Project does suggest there is willingness on the part of the Chinese government to consider the growth of occupational pensions and there is interest from overseas investment institutions in helping the Chinese authorities.

A conference was held in China in 2005, attended by government officials and pensions experts from investment houses, to discuss the issues affecting social security benefits development in China.

A World Bank paper produced in 1997 suggested China's net pension liability would exceed $1trn (€1.43trn) by 2010 and at that time recommended a three-pillar system be introduced.

Commenting on the insights gained so far through the EU-China project, Liu Mei, head of the Chinese delegation, suggested the Pensions Trust's experience of managing employer-sponsored pension schemes could be beneficial to the Chinese regime.

"China, like the UK, is facing the challenge of population ageing and the need to provide good occupational pensions as part of retirement income," said Mei.

"There are some difficulties in getting small to medium enterprises to provide occupational pensions. The Pension Trust's umbrella approach offers an excellent low-cost service that provides an important reference for developing occupational pension provision for SMEs in China," she added.

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