China’s first private retirement program, explained

Funded by account holders alone, each person is allowed to contribute 12,000 yuan a year, for now.

Photo from CFP

Photo from CFP



People in China will soon be able to put money into private retirement accounts to supplement state pensions, the government said on Thursday. The new national private retirement program has generated a lot of excitement and questions. Here is what we know.

Who can participate?

Only those already contributing to the state pension system are eligible. Up to 12,000 yuan (US$1,850) can be contributed to each account every year.

How is the new program different from existing ones?

There are three ways people can save for retirement – state pensions, employee plans and private savings. State pensions currently account for about 65 percent of all retirement savings. Employee and private plans take up 19 percent and 16 percent.

The government wants more private and employee programs to take the pressure of the state pension system. Shanghai, Fujian and Suzhou have been testing since 2018, but those programs only involve about 50,000 people.

How can an account be set up?

Accounts are set up at authorized banks or mutual funds. Strictly one per person, accounts are tied to state pensions and income tax.

Will contributions always be capped at 12,000 yuan a year?

The guideline says the limit will be adjusted according to economic conditions.

Can the money be taken out before legal retirement age?

No, unless the person is disabled, moving abroad, or faces other extraordinary circumstances. Once approved, the money can be withdrawn on a monthly basis or all at once. If the account holder dies, the fund can be bequeathed.

Why would people want to put money in their private retirement plans? Is there any preferential tax treatment?

The guidelines say there will be tax incentives but give details. The program is likely to follow those in other countries and allow tax deferral, meaning account holders do not have to pay income tax on the money invested until it is withdrawn. This enables the account holder to save interest on taxes owed. The pilot programs in Shanghai, Fujian and Suzhou all allow tax deferral.