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Pension fund seeks higher returns
By Sun Min (China Daily)
Updated: 2004-09-01 08:28
Following the entry of the central social security funds to the capital
market, the Chinese Government is planning to put more pension funds into stock
investment to seek higher returns, senior officials said yesterday.
The move is expected to make better use of the pension funds, infuse fresh
blood into the capital market and bring lucrative business opportunities to fund
managers.
The new force expected to enter the capital market is the pension funds of
personal accounts of individuals covered by the State pension system and the
occupational pension, which is paid by enterprises voluntarily for their
employees.
The overall investment ratio of the social security fund should be prudent,
since it is the lifeline of the people.
But as practised in many countries, it is still necessary to put part of the
pension fund into investments other than bank deposits and treasury bonds,
including stocks, according to Wang Jianlun, president of the China Social
Insurance Association.
China's current pension system is formed by the basic pension (the social
pooling), personal accounts, which are contributed to by the employees and
employers together, and commercial insurance.
So far, the first two are prohibited from making investments other than bank
deposits and in treasury bonds, but the funds put in personal accounts are
expected to be released from constraints.
Wang said that personal accounts should first be fully-funded to prepare for
investment moves and occupational pensions should be encouraged to seek new
investment tools.
The combination, innovation and prudence require scientific decision-making
procedure and the government should speed up relevant legislation, adjust
outdated policies and invite professional institutions to help with the
investment, she said yesterday at a seminar in Beijing.
But different parts of the social security fund should follow different
management and operational principles, said Liu Jiafu, vice-minister of the
Ministry of Labour and Social Security.
The basic pension, for example, will still be restricted to traditional
investment spheres because of its high demand for safety, while other parts of
the pension can be more flexible, he said.
Pi Dehai, deputy director of the Social Insurance Administration of the
labour ministry, said that the government could also make an experiment, using
personal account funds to issue special bonds. And when the time is ripe, it
should invite professional institutions to operate the investments.
The ministry can gain experience from the investment operation of the
National Council for Social Security Fund, which, founded in 2000, now operates
about 148 billion yuan (US$17.9 billion) of strategic reserve funds for the
social security sector.
The fund, which is not supposed to cover current social security expenses, is
a reserve for future social security demand to prepare for the aging of China's
population.
It sought six fund management companies to make securities investment
domestically in 2002 and is now finding new investment managers.
The council reported a 2.71 per cent return last year, which is higher than
the benchmark bank interest rate.
Zheng Bingwen, a senior researcher with the Chinese Academy of Social
Sciences, said that the social security fund should follow long-term investment
style and utilize the expertise of professional fund managers.
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