Foreign wealth managers eye China's growing pension market

Foreign companies have begun venturing into Chinese senior citizens’ financial services, particularly pension management. As a result of China’s policies that encourage foreign companies to assist senior citizens and China’s aging population, foreign companies have extensive opportunities to profit.

Managing $114 billion worth of pension assets worldwide, U.S.-headquartered Neuberger Berman last September won approval from the China Securities Regulatory Commission to establish a wholly foreign-owned public fund firm in China. It was also among the first foreign companies to receive such approval. The breakthrough has brought the company, which has been doing business in China for 14 years, a new possibility — joining China’s growing private pension sector. 

A much healthier and more comprehensive state pension system is taking shape in China, with the participation of private pension schemes to better support the country’s aging population.

“We are now only offering high cash yielding, long-term private funds to ultra-high net worth clients and institutions at the moment. But in the future, hopefully, after we acquire the license and new policies come out to allow us to launch pension products for the middle class, we will be very actively participating in that,” said William Hui, deputy CEO of Neuberger Berman Fund Management (China) Ltd.   

The State Council earlier this year released guidelines on developing private pension schemes in China as a supplement to the nation’s existing pension system. They say that citizens covered by the state pension system can now open a personal account on an online platform built and run by the Ministry of Human Resources and Social Security. They can then open an individual financial account at a commercial bank authorized by the platform to invest their pension payments in approved growth funds. 

Hui added that in the rest of the world, workers and investors are more inclined to put their money in personal pension products. Insurance companies and fund management companies manage these products, which offer the possibility of higher returns or more flexibility in terms of investment. Chinese people are now, however, increasingly transferring their savings to personal pension schemes.

By the end of last year, China already had more than 200 million people aged 65 or above. Together, they account for more than 14 percent of the country’s total population. These figures, along with the expansion of private or individual pensions, could be of huge commercial value. Experts say Chinese pensions could be particularly significant for foreign asset management service providers. 

Theodore Shou, chief investment officer of Skybound Capital, believes the individual pension plan market has enormous potential, and the involvement of foreign asset managers could spur product development. 

“Many Chinese asset managers have little knowledge or experience in designing products that target the retirement market or pensions. These are lessons that such managers can learn in other markets and they can easily apply them to the Chinese market, leading to a better developed range of products that they can offer on the market,” said Shou.

Samuel Fischer, head of China Onshore Debt Capital Markets for Deutsche Bank, says the bank’s subsidiary wealth management company DWS has also expanded its business in China. He echoed Shou’s idea, saying opening the market to foreign players will hugely benefit both sides. 

In March, China expanded the scope of a pilot program for retirement wealth management products from four cities to 10. It also increased the number of banks’ wealth management subsidiaries participating in the program from four to 10. By the end of June, 27 wealth management products for retirement planning had been sold to 231,000 investors, with a total subscription amount of 60 billion yuan ($8 billion).