China’s three-pillar pension sector sees healthy growth prospects, improving investment returns and growing participation following regulatory changes. China’s total pension assets are expected to have grown by 19 percent in 2019 to more than RMB 15 trillion. This is a year-on-year growth rate similar to its long-term average of 17 percent recorded over the last decade. According to KPMG’s latest China Pensions Outlook report, the increase was due to the development of occupational annuities and continued capital injection under Pillar One (government scheme).

Fundamental developments, including opening up to foreign entrants, additional use of professional managers, and the beginnings of a centralised operating model, give hope for sustained longer-term development. Howhow Zhang, Partner, Global Strategy Group, KPMG China, says: “We expect that Pillar One will continue to be the largest and most important part of China’s pension system.

Some of the most beneficial reforms are also likely to be rolled out under Pillar One first, including management centralisation, streamlining of capital injection, overseas investments, as well as better selection and monitoring of external managers.” The Public Pension Fund (PPF) and National Council for Social Security Fund (NCSSF) combined already account for about half of the country’s pension assets and have a much wider coverage than the other two pillars.

The coverage and size make the PPF, and its reserve, the NCSSF, the most indispensable part of China’s pension system. This means that various policymakers and administrations will have a strong incentive to make sure that Pillar One continues to function efficiently. As a result, it will likely develop most rapidly in relation to other pillars.

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