Demographic challenges prompt urgency to expand retirement savings as many Chinese remain unaware of benefits

Ruth Pan, in her late thirties, hasn’t given much thought to retirement. Living in Hangzhou, she’s among many Chinese who haven’t embraced the country’s new private pension plan.

The voluntary personal pension fund, common in advanced economies, has been on trial in just 36 Chinese cities. However, with China facing an ageing population, there’s a push to expand it nationwide this year.

Despite efforts to promote the plan, many like Pan remain hesitant. She finds the tax relief limited and prefers the flexibility of her money, especially with family expenses.

While about 50 million personal pension accounts were opened by the end of 2023, only about one-fifth received contributions. The average contribution was far below the annual limit, indicating a lack of interest.

Professor Suo Lingyan from Peking University points out that weak expectations for long-term value preservation and appreciation are major deterrents. Interest rate cuts in the past year have further dampened enthusiasm.

Thomas Pixley from Charles Schwab emphasizes the low financial literacy among Chinese consumers. Many don’t understand the benefits or tax advantages of a personal pension plan.

Professor Wu Fei from Shanghai Jiao Tong University echoes this sentiment, noting a lack of awareness about long-term financial planning and suitable pension products.

The government aims to optimize incentives to encourage early contributions, with former finance minister Lou Jiwei stressing the urgency of expanding the plan amid demographic shifts.

China’s basic pension system faces financial sustainability issues, with projections showing exhaustion by 2035 if payment rates remain unchanged. Despite discussions about raising retirement ages, no concrete changes have been made yet