China launches pilot program to strengthen retirement planning

Elderly residents take part in an art class at the day care center of a citizen service station in Shanghai, Aug. 30, 2020. [Photo by Zhu Xingxin/]

China will launch a pilot program encouraging personal deposits for retirement planning in five cities to further enrich the supply of financial products and meet the diversified demand for elderly benefits.

From November 20, four major state-owned banks, namely Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China, will conduct the pilot program for one year in Hefei, Anhui Province; Guangzhou, Guangdong Province; Chengdu, Sichuan Province; Xi’an, Shaanxi province and Qingdao, Shandong province.

The limit on such deposits is 10 billion yuan ($1.48 billion) for each bank, the China Banking and Insurance Regulatory Commission said on Friday in a notice issued jointly with the People’s Bank of China, the bank center of the country.

Banks will offer three types of retirement planning deposit products with maturities of five, 10, 15 and 20 years. Interest rates will be slightly above the five-year deposit rate of the major banks. The upper limit of the principal of such deposits is 500,000 yuan for each customer of each bank, the CBIRC said.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd, said the pilot program is conducive to enriching the offering of financial products for retirement planning, which will complement wealth management products and insurance and funds for retirement planning.

“The maturities of the deposit products to be launched vary from five to 20 years and the interest rates are moderate. The products will suit the group of clients who are less concerned about liquidity, have a low tolerance for risk and are looking for a fixed income. Dong said.

“To better meet different types of customer demands, China should further enrich deposit products for retirement planning, optimize the maturity structure, and take measures to support customers who face an urgent need for liquidity. For example, banks could allow customers to withdraw part of the time deposit before maturity and provide the term deposit pledge service,” he said.

Dong advised regulators to raise the cap on such products, if necessary, and expand the pilot program to other banks based on trial results.

“China should make full use of the advantages of the banking system, insurance industry and capital market, enhance industrial synergy and resource integration, explore new types of financial products and retirement planning models, and create a cross-cyclical, long-term diversified asset allocation model,” he said.

Chinese consumers’ propensity to save has increased amid the economic slowdown during the COVID-19 pandemic.

In the first half of this year, household deposits grew by 10.33 trillion yuan, compared with growth of 7.45 trillion yuan in the same period a year earlier, according to the PBOC.

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