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Annuity System Tops US$12 Billion in 9 Months

Chinese enterprises have accumulated more than 100 billion yuan (US$12 billion) in annuities in the nine months since the government standardized annuity regulations, according to a Ministry of Labour and Social Security official.

"Most enterprises with additional pension funds are adapting to the annuity system," said Rui Lixin, an official with the ministry's legal affairs department.

The number is expected to grow, with more and more businesses planning to introduce the annuity system, Rui said at a seminar on social security legal systems sponsored by the Institute of Law under the Chinese Academy of Social Sciences (CASS).

China's pension system is mainly comprised of statutory pensions, annuities or additional corporate pensions, as well as private pension insurance, according to Rui.

The country's first regulations on business annuities became effective in May, laying a legal framework for annuity systems that encourage enterprises and employees to set up annuity funds to complement statutory pension funds.

Enterprises are offered a tax waiver for money collected as annuities, if the amount is not more than 4 percent of their employees' yearly salaries. The regulations require enterprises to form special offices or hire financial companies to manage the funds.

The Taiping Life Insurance Company Limited and the Ping An Insurance Company Limited won approval from the China Insurance Regulatory Commission last month to become the first two insurance companies to run an annuities business.

It is generally believed China's annuities could exceed 1 trillion yuan (US$120 billion) when the market becomes fully developed.

Liu Junhai, a researcher with the CASS Institute of Law, said annuities regulations need to be improved to make annuity management more cost-effective.

According to current regulations, financial companies entrusted to manage business annuities should hire custodians, bookkeepers and asset managers to take care of the respective links in annuity management.

"Such a long management chain is costly and will lower the efficiency of supervision," Liu told China Daily.