News Life and Health20 Mar 2018

China:Private retirement plans can adopt fund of funds format

20 Mar 2018

China's securities regulator has announced guidelines for private "third-pillar" retirement plans that could foster long-term investment habits among the Chinese.

The China Securities Regulatory Commission (CSRC) guidelines require savers to accept minimum holding periods of one, three or five years for the target-date and target-risk fund-of-funds (FOF) offerings set to become the backbone of a new class of individual retirement accounts.

The guidelines urge managers of those products to offer lower fees for longer lockup periods, while allowing higher ceilings for allocations to equities and other risk assets for products with longer holding periods, notes Pensions & Investments.

The CSRC announcement said a FOF under the third-pillar system will be able to invest up to 30% in risk assets for a strategy with a one-year lockup, 60% for three years and 80% for five years. A FOF is multi-manager investment strategy, which invests in a portfolio containing different underlying assets.

Those individual retirement plans are expected to complement the national and provincial public pension funds that make up the first pillar of China's retirement safety net and the second pillar of enterprise annuities that big corporations offer to their employees.

At the same time, the CSRC has also granted approval to three asset managers to launch retail-focused FOF products, six months after giving the nod to the first group of six asset managers.

Ms Rachel Wang, director of manager research at US-based investment research firm Morningstar, told Asia Asset Management: “Overseas experiences show that FOFs are good products for pension investment because of its asset allocation feature,” Ms Wang says.

“The reform of the private pension market is still underway in China. As such, the government wants to make sure that all feasible pension products, including FOFs, are available on the market before it unveils the details of the policy,” she added.

Details of a proposed tax-deferred pension scheme have yet to be announced, even though deliberations on the subject have been on-going for at least a decade.


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