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A new era of China’s pension system

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

15 minute read 14 Mar 2023

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Strategy by EY-Parthenon

Financial services

Wealth and asset management

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.

Download China Pension Report 2023: Pillar three, Year zero

Given 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:

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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.
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.
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.

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.

Related content

EY-Parthenon releases inaugural China Pension Report

HONG KONG, 24 JANUARY 2022 — Ernst & Young Transactions Limited (EY-Parthenon) released its inaugural China Pension Report which summarizes the outlook for the China pension market, comments on recently announced pension-related polices, and highlights the key aspects of a winning strategy in China’s pension market.

EY Greater China

About this article

Howhow Zhang

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

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