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Pension Fund Seeks Higher Returns

Following the entry of the central social security funds to the capital market, the Chinese Government is planning to put more pension funds into stock investment to seek higher returns, senior officials said yesterday.

The move is expected to make better use of the pension funds, infuse fresh blood into the capital market and bring lucrative business opportunities to fund managers.

The new force expected to enter the capital market is the pension funds of personal accounts of individuals covered by the State pension system and the occupational pension, which is paid by enterprises voluntarily for their employees.

The overall investment ratio of the social security fund should be prudent, since it is the lifeline of the people.

But as practised in many countries, it is still necessary to put part of the pension fund into investments other than bank deposits and treasury bonds, including stocks, according to Wang Jianlun, president of the China Social Insurance Association.

China's current pension system is formed by the basic pension (the social pooling), personal accounts, which are contributed to by the employees and employers together, and commercial insurance.

So far, the first two are prohibited from making investments other than bank deposits and in treasury bonds, but the funds put in personal accounts are expected to be released from constraints.

Wang said that personal accounts should first be fully-funded to prepare for investment moves and occupational pensions should be encouraged to seek new investment tools.

The combination, innovation and prudence require scientific decision-making procedure and the government should speed up relevant legislation, adjust outdated policies and invite professional institutions to help with the investment, she said yesterday at a seminar in Beijing.

But different parts of the social security fund should follow different management and operational principles, said Liu Jiafu, vice-minister of the Ministry of Labour and Social Security.

The basic pension, for example, will still be restricted to traditional investment spheres because of its high demand for safety, while other parts of the pension can be more flexible, he said.

Pi Dehai, deputy director of the Social Insurance Administration of the labour ministry, said that the government could also make an experiment, using personal account funds to issue special bonds. And when the time is ripe, it should invite professional institutions to operate the investments.

The ministry can gain experience from the investment operation of the National Council for Social Security Fund, which, founded in 2000, now operates about 148 billion yuan (US$17.9 billion) of strategic reserve funds for the social security sector.

The fund, which is not supposed to cover current social security expenses, is a reserve for future social security demand to prepare for the aging of China's population.

It sought six fund management companies to make securities investment domestically in 2002 and is now finding new investment managers.

The council reported a 2.71 per cent return last year, which is higher than the benchmark bank interest rate.

Zheng Bingwen, a senior researcher with the Chinese Academy of Social Sciences, said that the social security fund should follow long-term investment style and utilize the expertise of professional fund managers.

(China Daily September 1, 2004)

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