Citic Securities plans to take stake in new private pension venture

Photo by Josh Appel on Unsplash

Citic Securities Co. Ltd, one of China’s biggest brokerages, is planning to take part in a new pension joint venture, embracing the nation’s call to tackle a looming pension crisis fueled by questions surrounding the sustainability of the current pension system as the population rapidly ages.

In a bid to overhaul the strained, state-dominated pension system, China is looking to spur the development of a private, so-called third-pillar (第三支柱), with a view to encourage people to save more through commercial pension products and play a bigger role in supporting themselves after retirement.

Citic Securities Investment Ltd. and Citic Wealth Management Corp Ltd., two connected companies of the brokerage, on Friday signed an agreement with 15 other promoters to establish an insurance business joint venture that will offer commercial pension plan management, according to a company filing released by Citic Securities.

The resulting pension insurance company is likely to be launched in the fourth quarter of this year as part of the country’s third-pillar pension system, sources familiar with the matter told Caixin.

The registered capital of the venture is expected to be 11.15 billion yuan ($1.72 billion), of which Citic Wealth Management will contribute 500 million yuan and Citic Securities Investment will put in another 300 million yuan, representing a combined stake of around 7%, according to the filing.

Other investors, independent of Citic Securities and its connected companies, will form the rest of the capital base. No specifics on these participants or details of their stakes were released in the filing.

The establishment of the joint venture, pending approval by China’s top insurance regulator, dovetails with China’s vow to bolster the three-pillar national pension system by promoting the private pension sector over the next five years.

The Insurance Association of China estimated last year that the country could suffer an 8 trillion yuan to 10 trillion yuan pension shortfall over the next five to 10 years.

China currently operates a three-pillar pension system that is dominated by the state-run “first pillar,” which consists of basic pension insurance funds generally managed by provincial-level governments. The first-pillar funds account for 82.9% of total pension funds by asset value in China.

Meanwhile, funds from employers put into enterprise annuities and occupational annuities — the “second pillar” — made up 17.1%, according to an article published in May by a researcher from the finance institute of the Chinese Academy of Social Sciences, a state-backed think tank, and his research fellow at the University of Chinese Academy of Social Sciences.

So far, third-pillar funds are negligible, but recent momentum behind China’s push into private pensions suggests the sector has growth potential. In June, the country launched a new pilot program for private pension funds that allow workers to open their own individual pension accounts at one of six participating insurance companies.

Experts and analysts urge the government to build up related infrastructure such as clear definitions of qualified third-pillar products and to offer more incentives such as preferential tax treatment to support the sector.

This article was first published in Caixin Global.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

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Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.