Generali China Life receives approval to sell the new government-backed tax-deferred pension policies

Generali China Life is among 12 insurance companies approved by the regulator to sell tax-deferred pension policies. Generali China Life applied 3 earning types A/B1/B2 to the regulator, and the products were approved on 22nd June. Generali China Life is now launching a new round of publicity and communication to promote this business, which is believed to also help deepen the cooperation with current clients.

China is now facing the challenge of an aging society. According to the Office of the National Working Commission on Aging, by the end of 2017 the number of people aged 60 or above in China reached 240 million, accounting for 17.3 percent of the country’s total population. Even worse, the aged population in China is expected to peak at 487 million around 2050. This aging trend poses both demographic and economic impact upon China, namely shrinking labor force and increasing pension pressure.

Under this background China started launching its individual tax-deferred commercial pension scheme.  On 12th April the Ministry of Finance, State Administration of Tax, Ministry of Human Resources and Social Security, China Banking and Insurance Regulatory Commission and China Securities Regulatory Commission jointly issued the “Notice on Launching Pilot Individual Tax-Deferred Commercial Pension”. According to this notice, a pilot tax-deferred pension insurance project has been launched on 1st May in Shanghai, Fujian Province and Suzhou Industrial Park in Jiangsu Province, respectively. The duration of the trial experiment is one year. In the long run, the tax-deferred pension scheme is expected to be fully implemented nationwide.

The launch of the new tax-income deferred pensions was designed to encourage commercial endowment insurance in China, and would promote the balanced development of China’s pension system, which is composed of basic social pension, occupational pension, and individual commercial insurance pension. Currently the basic social pension takes the major role but the government is under increasing fiscal pressure, and dissatisfaction also rises among the people due to low substitution ratio of the pension income.

Under the new plan, individuals are allowed to defer tax on part of their income that is used to buy commercial pension insurance until they retire and draw money from the fund. The maximum pre-tax deductible amount is RMB1,000 per month.

At the time of withdraw the pension at retirement, 25% of the business pension when the individual meets the prescribed conditions is exempt from tax.75% of the pension should pay individual income tax at a rate of 10%. It is the equivalent of paying tax for personal income at a rate of 7.5% at the time of draw the pension.

On 18th May, the China Banking and Insurance Regulatory Commission released product guidance and regulations on the development of the tax-deferred commercial endowment insurance, which clearly stipulated the principle, payment method and earning types of tax-deferred commercial endowment insurance. 4 earning types of exclusive products include Type A (ordinary pension insurance, annual compound interest & fixed return), Type B1(universal pension insurance, annual compound interest with guaranteed return + extra return, monthly settled), Type B2(participating pension insurance, annual compound interest with guaranteed return + extra return, quarterly settled) and Type C (united-linked pension insurance, annual compound interest +floating Return, daily settled).