China opens civil servant pensions to managers

China is letting new occupational retirement schemes for civil servants outsource investments to domestic asset managers, opening opportunities for investment firms and other service providers.

Beijing will probably allow firms already managing enterprise annuities (EAs) – defined-contribution schemes for both state-owned and private companies often likened to 401(k) retirement plans in the US – to apply to also serve civil servants’ occupational annuities.

This is good news for EA managers: according to Constance Tan, an analyst at Shanghai-based consultancy Z-Ben Advisors, most big state-owned enterprises already have established enterprise annuities, and while assets continue to flow to these plans, there are few new ones being set up.

Li Lianren, director for annuities at Ping An Annuity, estimated occupation-annuity contributions will quickly reach Rmb160 billion ($24 billion) every year. He predicted the entire programme will reach the Rmb1 trillion ($148 billion) mark within five years.

He makes such calculations based on the fact that it will now be mandatory for China’s 400 million civil servants – at the central, provincial and city level – to participate in the schemes. Since occupational annuities were announced, employees have already begun paying 4% of salary, and employers 8%, but the money has not yet been invested.

Occupational annuities’ pools of assets will therefore likely eclipse those of EAs. According to MoHRSS, EA assets under management grew by 25% over 2015 to Rmb926 billion ($137 billion), but the number of new employee contributors grew by only 1%, or 240,000 people.

The biggest managers of EA assets, such as Ping An Annuity and China Life Pension Company, have told local media they are already developing relationships with various provincial and city governments to manage their occupational-annuity programmes. But these government bodies, particularly at the local level, will also need to establish investment committees before they can begin to outsource investments.

Today 21 investment managers are licensed for EA assets, including 11 fund management companies, four pension insurance firms, three asset managers tied to insurance companies, one bank, one broker and one bespoke pensions manager.

Tan said the MoHRSS may allow managers that are not currently managing EA money to also apply for occupational annuity business.

The Ministry of Human Resources and Social Security (MoHRSS) and the Ministry of Finance (MoF) jointly announced rules for the investment of occupation annuity assets. Up to 30% of funds may go into ‘risk’ assets including stocks, as well as to balanced mutual funds and other pension products that allocate a majority of their assets to equities.

According to the new rules, announced on October 12 but effective as of September 28, occupation annuities cannot invest in international assets. They can, however, invest in a wide array of domestic assets, including bank deposits, bonds, banks’ wealth-management products, trust products, and infrastructure-related debt.

These plans were first introduced in January 2015, aimed to provide a variety of pension products to the 400 million civil servants at the central, provincial and city level.