Local pensions not to be used for investments

The finance departments of local governments can't use the balance of their social security funds for investment, according to China's Ministry of Finance.

In a notice aimed at strengthening the management of local social security funds, the ministry asked local governments to strictly enforce regulations to maintain the asset value of the pension funds.

"Local finance departments cannot use the balance of social security funds in any direct or indirect investment," the ministry said in a notice posted on its website yesterday.

The local finance departments need to build a long-term comprehensive management system of the social security fund to ensure its safety, the notice added.

However, Wang Yongjun, head of the Finance Research School at the Central University of Finance and Economics, said allowing local finance departments to invest local pension funds can also diversify investment risks.

Jia Kang, head of the Research Institute for Fiscal Science at the ministry, would not directly comment on the policy about managing the social security fund. Jia yesterday said the policy needs to be further reviewed, according to the National Business Daily website.

He added that the social security funds need to diversify ways to increase asset value by learning from overseas experience while understanding China's own situation.

The ministry's notice was on the heels of the announcement by the National Council for Social Security Fund last week that it will manage Guangdong Province's 100 billion yuan (US$15.9 billion) pension fund by investing mostly in fixed income assets, such as state treasury bonds and bank deposits.