Mutual Funds Can Work on Three Areas to Boost Personal Pension Market
Since the personal pension scheme was initiated in 36 Chinese cities in late 2022, 28.17 million residents had taken part by March 2023, providing a new development opportunity for mutual funds. In a recent media commentary, Prof. Huang Zhuo of the NSD and his co-author Mr. Shen Shaowei, an investment analyst, traced and analyzed the development of pension funds and put forward some advice for mutual funds to boost the market.
According to McKinsey, China has an annual pension shortfall of USD100 to 150 billion. The authors believed that the gap will mainly have to be bridged by private pensions. By June 30, 151 personal pension funds, together with 45 sales agencies of such funds, had been greenlighted. Bain Consulting’s whitepaper estimated that China’s pension market will grow by 15% annually, reaching a total scale of 26 trillion yuan and 48 trillion yuan in 2025 and 2030 respectively.
The authors noted that the current size of pension funds still lags behind expectations. By the end of March, only five pension funds had crossed the landmark of 200 million yuan, with the largest one at about 500 million yuan. Various research find that pension funds are offering a very limited range of products, which can hardly meet the demand of different income and age groups.
While recognizing the need to have more institutions and policies to stimulate the development of the private pension market, the authors advised mutual funds to work on three areas. The funds should keep improving their investment and research capabilities, so as to achieve better long-term returns to meet the investors’ retirement needs. The over-reliance on star managers should be foresaken, and pursuit of short-term performances be strictly contained. Secondly, the funds should make use of digital means to conduct investor education. A 2022 survey found that 46.6% of investors acquired information about retirement and pensions mainly on social media. One more area the funds can work on is to strengthen partnerships with commercial banks to build customer-centric investment and consulting services. The authors reckoned that commercial banks stand at the critical junctures of the pension ecosystem, as they are the only institutions where personal pension accounts can be opened, and they have accumulated ample customer service experience and offered a rich range of products. Mutual funds and commercial banks should work to transform the service model from being ‘seller’s investment adviser’ to ‘fund investment adviser’ by focusing on maximizing clients’ returns and combining the roles of private pension investor and fund investment adviser.