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SOEs get green light to offer annuity plans
By Hu Yuanyuan (China Daily)
Updated: 2006-02-16 07:21
Two banks and one insurance company will become the first batch of
State-owned enterprises to establish an annuity system for their employees.
China Everbright Bank, Bank of China and PICC Property and Casualty Company
Ltd recently got the go-ahead from the Ministry of Labour and Social Security
for their proposed annuity plans.
This marks an increasing trend in SOEs, which in the past have generally only
offered statutory pension plans, to better secure their employees' retirements
through an annuity.
In order to issue the annuity, which pays out investments over a set period
of time, enterprises must get a third-party trustee to oversee the execution.
In August, the three enterprises were licensed to be annuity management
trustees for other companies, but now that they can offer their own, it is
possible they can attract more customers, said a Ministry of Labour and Social
Security official surnamed Guo.
"Financial enterprises have special advantages in running annuities," Guo
said. "Besides, all of them (the three enterprises) got the licence to manage
annuities last August, thus making them more familiar with the market and
regulations."
The government issued 37 licenses to 29 companies allowing them to oversee
other enterprises' annuities last August in order to straighten out the pension
management market.
Chinese enterprises have accumulated more than 100 billion yuan (US$12
billion) in annuities in nine months since the government standardized annuity
regulations in May 2004, according to a Ministry of Labour and Social Security
official.
"Most enterprises with additional pension funds are adapting to the annuity
system," said Rui Lixin, an official with the ministry's legal affairs
department.
The number is expected to grow, with more businesses planning to introduce
the annuity system, Rui said at a seminar on social security legal systems
sponsored by the Institute of Law under the Chinese Academy of Social Sciences
(CASS).
The country's first regulations on business annuities became effective two
years ago, laying the legal framework for annuity systems that encourage
enterprises and employees to set up annuity funds to complement statutory
pension funds.
Enterprises are offered a tax waiver for money collected as annuities, if the
amount is not more than 4 per cent of their employees' yearly salaries.
The regulations require enterprises to form special offices or hire financial
companies to manage the funds.
The Taiping Life Insurance Co Ltd and the Ping An Insurance Co Ltd won
approval from the China Insurance Regulatory Commission in early 2005 to become
the first two insurance companies to run an annuities business.
It is generally believed China's annuities could exceed 1 trillion yuan
(US$120 billion) when the market becomes fully developed.
(China Daily 02/16/2006 page9)
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