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Pension fund investment repeatedly called for

2011-12-23 13:15    Ecns.cn     Web Editor: Su Jie
Currently the balance of social security funds totals 2 trillion yuan, and the housing provident fund also amounts to 2.1 trillion yuan.

Currently the balance of social security funds totals 2 trillion yuan, and the housing provident fund also amounts to 2.1 trillion yuan.

(Ecns.cn)--A portion of the nation's largely unmanaged pension funds should be allowed for long-term investment in securities to achieve higher returns, Dai Xianglong, chairman of the National Council for Social Security Fund (NCSSF), suggested on Tuesday at the International Social Securities Forum held in Beijing.

"Nearly all pension funds in the world invest in the stock market. I think it is OK to allocate part of the pension funds managed by local governments to buy stocks. This will help preserve and increase the value of pension funds," the China Daily quoted Dai on Wednesday.

Local pension funds could invest less than 40 percent of assets into the stock market, Dai advised, as the proportions in foreign countries usually range from 20 to 50 percent.

Dai's words echoed a recent call made by Guo Shuqing, the new chairman of the China Securities Regulatory Commission (CSRC), to invest pension funds in the domestic stock market.

"It is estimated that the accumulated amount of social security funds, including pensions and enterprise annuities, are getting bigger as time goes by," Guo said on December 15, summarizing that currently the balance of these funds totals 2 trillion yuan, with the housing provident fund also amounting to 2.1 trillion yuan.

According to the Z-Ben Advisors, a Shanghai-based boutique consulting firm, Guo also proposed to set up a specialized investment institution, similar to the NCSSF, to manage and encourage these funds to promote venture capital and private equity investments targeting long-term returns.

"Responding to the Twelfth Five-Year Plan's to advance pension investment actively and prudently, governments are planning to unify some scattered regional pensions and invest them in various financial products," pointed out Dai Xianglong, who is strongly supportive of the approach.

China should establish a pension system in line with the country's economy, in order to better address the long-term gap between spending and revenue in relation to pension funds, Dai told china.org.cn.

He added that the pension funds may see great progress concerning the investment management style. It would follow the current investment model of the Social Security Fund (SSF), which, according to a report by Shanghai Securities News on Tuesday, has injected 10 billion yuan ($1.6 billion) into the domestic stock market through other funds to enliven weak investor sentiment.

The remarks have sparked heated debates among the public over pension fund-related issues, such as the investment operation of personal accounts, the social security fund and enterprise annuities, as inflation is expected to edge up and the fund might be devalued.

Citing China's stock market performance over the last decade, some speculated that the earnings of the fund could not catch up with the rise of consumer prices for the long term, which could lead to huge losses.

Under current regulations, China's national pension fund is only allowed to be deposited in banks or used to purchase treasury bonds. After subtracting the inflation rate, the average interest rates on personal-account funds invested in one-year bank deposits, three-year bank deposits and three-year treasury bonds are -0.11 percent, 0.73 percent and 1.25 percent respectively, revealed the China Daily.

Ye Tan, a financial commentator, stressed that the pension fund and housing provident fund provide a defense for people's lives in the future, and must not be invested now. China's stock market has been embroiled in various scandals and is not likely to be able to yield good results, he added.

In China, little is done to manage the country's pension funds, which employees pay into. Once contributions have been made, basically nobody is responsible for ensuring that returns even exceed the rate of inflation, which has shot up in recent years. There are no central government agencies designated to invest the funds and few local governments bother, analyzed the China Daily.

Yet Chen Liang, with the Ministry of Human Resources and Social Securities, pointed out that the operation of China's pension fund should absorb experiences in operating enterprise annuities and the national social security fund to increase investment income and avoid devaluation.

Statistics show that enterprise annuities, which can be invested in limited financial tools, had an investment interest rate of 14.26 percent as of 2010. The national social security fund, which has more choices in investment, had a total return on investment of 244.8 billion yuan ($36.13 billion), with an annual interest rate of 9.75 percent in the nine years since its establishment.

However, by the end of 2010, only 31.8 billion yuan ($5 billion) in pension fund assets had been invested in securities, yielding less than 2 percent a year. The rest mostly sat in banks, earning deposit rates that generally failed to keep up with inflation.

Zheng Bingwen, a researcher at the Chinese Academy of Social Sciences, told China Daily that to maintain the value of the pension fund required keeping the nominal value, keeping in step with the CPI and catching up with average wage growth to maintain its purchasing power.

Guo Shuqing called on China's investment banks to design products that would help the funds invest in the securities market. He also proposed to set up a specialized investment institution, similar to the NCSSF, to manage local social security funds and the housing provident fund, with efforts focused on encouraging the promotion of venture capital and private equity investment targeting long-term returns.

Hua Jianmin, vice-chairman of the Standing Committee of the 11th National People's Congress, the top legislature, said the nation should give its pension funds priority in selecting investment opportunities to ensure the funds' safety.

"Attention should be given to helping the pension funds retain their value. When we see good investment opportunities, we should first consider pension funds," he told China Daily.