Contributions to China’s fledgling private pension accounts have reached about 20 billion yuan ($2.9 billion) since their inception in November, with just under 70% of the funds invested, Caixin has learned, suggesting hesitation among some participants due to unfamiliarity with the system.

Around 13.5 billion yuan has been invested across a range of eligible financial products, with the majority of the remaining funds just sitting idle in people’s accounts, said people familiar with the matter.

Bank deposits have been by far the most popular choice attracting close to 60% of the total, the sources told Caixin. Mutual funds took up about 30%, while pension insurance products and bank wealth management products (WMPs) had each only drawn in about 4% of the funds, they said.

Officials and experts have previously flagged concerns about a lukewarm response to the new system, which carries the hopes of significantly boosting China’s miniscule personal pension market as the state-run pension system struggles under a rapidly aging population and a dwindling workforce.

The private pension system has been operating smoothly since November, but the public’s understanding of it is insufficient, said Jia Jiang, a deputy director of pension insurance at the Ministry of Human Resources and Social Security, at a conference in late March.

Participants in the private pension program are required to set up two accounts: one on a government-run platform to manage contributions, withdrawals and personal income tax information, and a fund account with a qualified institution, such as a bank, to invest in financial products.

A person can transfer up to 12,000 yuan per year into the fund account and invest the money in eligible financial products of their choice.

As of the end of 2022, 19.54 million people had set up accounts, but only 6.13 million had actually made contributions, according to data released in January from the Ministry of Human Resources and Social Security.

This shows most people are taking a wait-and-see approach due to a lack of understanding of the personal pension policy and unfamiliarity with the security and profitability of the financial products offered, Zhang Xing, deputy director of pension security research at the Chinese Academy of Labor and Social Security, said at the March conference.

In China’s “three-pillar” pension system, the first two pillars — the state-run basic pension insurance system and employer-sponsored annuities — hold almost all the funds.

The third pillar — personal pensions — accounted for less than 1% of the country’s total pension funds in 2021, according to the Insurance Asset Management Association of China.

By comparison, the ratio in the U.S. was nearly 40%, analysts at Industrial Securities said in an October report.

But policy support is likely to see a rapid expansion of the third pillar. Hua Chuang Securities analysts predicted in September that funds in individual pension accounts could reach 3.36 trillion yuan by 2031, while China Merchants Securities estimated in a June report that the amount could be 2.77 trillion yuan.

As of the end of March, eligible financial products that have been approved by regulators to participate in the personal pension system include 465 savings products, 137 mutual funds, 18 WMPs and 19 commercial pension insurance products, Caixin has learned.

Banks’ account opening services and large customer bases have given them a big advantage, while the investment experience of mutual fund firms has benefitted them, a number of industry insiders said. They expect allocation of private pension funds towards mutual funds and insurance products to increase over time.

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