photo by: ansonmiao

Chinese Pension Inflows Surge

Money going into Chinese pensions is up nearly 24% from last year.

For the first five months of the year, 1.58 trillion yuan (US$232.4 billion) flowed into pension funds in China, a nearly 24% surge from the same period last year, according to China’s Ministry of Human Resources and Social Security.

Total expenditure in the period increased 23.2% to 1.35 trillion yuan, leaving a balance of around 226 billion yuan. The cumulative balance stood at 4.08 trillion yuan at the end of May. A ministry spokesperson said the trend of pensions revenue surpassing expenditure will likely continue for the rest of the year, which will help ensure benefits are paid in full and on time.

With more than 200 million people over the age of 60, China has been actively expanding pension fund coverage for its citizens. By the end of 2016, the number of Chinese employees participating in workers’ pension funds grew by 25.7 million from the previous year to a total of 379 million.

Despite the strong growth in pension fund inflows, there has been a widening gap between pension funding levels based on geographic region. In the parts of China where economic growth has fallen behind the national average, such as northeast China, fewer people paid contributions, which resulted in a periodic deficit due to the many people who retired.

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According to the ministry, local governments in China have also been expanding their pension investments. In 2016, local governments contributed a combined 66.8 billion yuan, which was up nearly 80% from the previous year.

China will continue to increase pension fund revenue by expanding coverage and raising fiscal investments, the ministry said. The central government will also have more influence on addressing the geographical imbalance, making adjustments to help lessen the burden in areas where there is a pension fund shortfall.

“We should start from where we are now and focus on the long term,” said a ministry spokesperson, “taking effective measures to ensure steady growth of the pension fund and promote the sustainable growth of the pension system.”

The ministry said that in addition to increasing the flow of money into pension funds, it is also looking to garner better returns. Although pensions in China have traditionally been held by banks or used to purchase treasury bills, they are now permitted to invest in financial products, such as stocks and bonds. However, because equities carry higher risk than funds in banks or treasury bills, the Chinese government has placed a 30% limit on the proportion of pension funds that can be invested in stocks.

China is also looking to develop commercial pension insurance, and has urged insurance companies to offer personalized and differentiated services to individuals and households.

“Commercial pension insurance, just like social security, is a lifeline for ordinary people,” said Chinese Premier Li Keqiang. “We must ensure that the funds are managed safely and reliably. This is the bottom line that every insurance institution should adhere to.”

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OMAM’s Peter Bain Resigns

Board chairman to serve as executive chairman, interim CEO.

After having “successfully accomplished his mission,” Peter Bain — head of the Old Mutual Asset Management (OMAM) — resigned with immediate effect from his position as president, CEO, and director Friday. James J. Ritchie, chairman of OMAM’s board of directors, will serve as executive chairman and interim CEO until a replacement is found.

“We restructured the business to focus on Affiliates with high growth potential, became a public company, completed a successful new Affiliate acquisition and executed the sell-down process for Old Mutual plc,” Bain said in a statement. “I am happy to hand over the business in good shape and want to thank my team for their dedication and support in our drive to create a great company.”

The $249.7 billion fund’s parent company, Anglo-South African financial services group Old Mutual is currently in the process of separating its four businesses (OMAM, Old Mutual Emerging Markets, Old Mutual Wealth, and South Africa’s Nedbank). Each asset is currently being sold off or listed. The split is estimated to be completed at the end of 2018.

Old Mutual currently owns 22.4% of OMAM. HNA Capital is set to acquire 15% of OMAM by the end of 2017, bringing Old Mutual’s stake in OMAM to 7.4%.

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OMAM declined to comment.

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