China's enterprise annuity program, the local
version of a 401(k), could be poised to see growth in combined retirement
assets under management from less than 600 billion RMB ($98 billion) last year
to 4 trillion RMB ($653 billion) or more by 2020 as a result of tax incentives
announced in December, according to analysts. Such growth would make it the
second biggest supplementary corporate pension market in Asia after Japan.Beginning in January
2014, employers may take tax deductions for contributions to enterprise
annuities of up to 8.33% of their total salary outlays for the prior year,
while individual income taxes on employee contributions to company plans of up
to 4% of wages would be deferred until the point when retirement funds are
drawn down.
In the absence of tax
incentives, those plans “were not very attractive and the participation ratio
remained relatively low,” noted Ivan Shi, head of research for Z-Ben Advisors,
a Shanghai-based consultant on investment management business opportunities in
China.
Currently, less than 20
million employees in China are participating in enterprise annuity plans, out
of an urban working population of 158 million.
That favorable
tax treatment introduced in January “removes a major barrier to the development
of (enterprise annuities) in China,” according to a December report by PricewaterhouseCoopers LLP.
Combined
with an expansion of permissible investments last year, the latest enhancements
have given enterprise annuities “the necessary tools to meet surging demand on
the mainland for attractive pension options,” agreed Z-Ben in a December
report.
The recent
move by the government to strengthen China's retirement system have left
enterprise annuities “primed to finally live up to expectations” as that
system's “second pillar,” complementing the country's national pension coverage
and private savings, Z-Ben said.
The
flourishing of that retirement “pillar” could help put the country's fund
management companies on firmer footing, at a moment when a stubborn bear market
for large-cap domestic equities since 2009 has found many firms turning to
riskier business segments — securitizing assets from their bank and securities
company owners — for the bulk of their growth.
For now though, any surge in enterprise
annuity assets will be a boon mainly to China's biggest domestic fund
management firms, which snared the bulk of the licenses issued by regulators
between 2005 and 2007 needed to manage money for corporate plans.
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