The China Banking and Insurance Regulatory Commission approved in September the creation of the new National pension insurance company. It’s important, but the company got the wrong name.
Within the framework of international pension practices, if a pension insurance or annuity scheme is preceded by the word “national”, it has a fixed connotation: a fully-covered public pension system, which belongs to the “zero pillar” in the World Bank pension model. However, China’s new “national” pension system is in fact commercial and falls under the “third pillar” category of the model. Therefore, it is awkward and also inappropriate to use the word “national” for this Chinese retirement society when it is clearly different from the international standard. This could cause a lot of confusion in the actual operation.
Internationally, systems called “national pension insurance” or “national pension” protect older people against poverty. More specifically, there are two types: One is the national non-contributory, full coverage pension system, which operates entirely with tax revenue and aims to benefit everyone, often referred to as “citizens’ retirement” in European and American documents. . The other is a system supported by individual contributions and financial grants and managed like insurance. In Japan, it is known as “National Pension Insurance (Kokumin Nenkin Hoken)” (there is no word for “pension” in Japanese, but the word “nenkin” is equivalent to “pension” in Chinese) .
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Commercial pension insurance is a new industry in China, so we should learn from international experiences. But if Chinese officials tell their foreign colleagues that China has set up a new “national pension insurance” system and wants to refer to foreign experiences, there would be confusion as to whether the Chinese are referring to a zero pillar pension or commercial pension. Such a basic system, which concerns the national economy and the livelihood of the people, should also be standardized, as such a nomenclature goes against common sense and can have a great impact.
So why “national” can only be used for the public pension system?
For international pension systems, when the word “national” is added to the name of a pension system, it implies that all persons who are “nationals” of that country have the right to join the pension system, whatever whatever their income level. And it is a principle that is implemented throughout the world. Therefore, “national” cannot be used with any commercial pension, where some “nationals” will be excluded, even if the name of the insurance has “national” and even if the insurance relates to “pension”.
One of the reasons is that participating in commercial retirement schemes means investing in the capital market, where there is an inexorable law that people who cannot afford market risks should be excluded or only those who can. afford the risks can be insured.
The law stems from the peculiarity of the capital market. There are two types of investment, one with guarantee and the other without guarantee. Typically, banks require their issuing entities to provide collateral for loans, which makes this type of investment more secure than that in the capital market. But when an individual invests in the capital market, fund companies do not provide a guarantee, so the investor cannot defuse the risks by any guarantee, and in case of failure of the investment, all losses will be borne by the investor himself. This is different from bank loans. As a result, governments are adopting corresponding regulations to help investors avoid risk.
For example, ordinary Chinese people know the procedure for purchasing wealth management products. Before purchasing financial products from banks, their risk-taking capacities should be assessed. Even in developed countries, commercial pension insurance is primarily purchased by high-income and some middle-income people, and not by the general population.
The second reason is that fund companies are looking for profit, so they cannot afford to receive a large number of “nationals” with extremely low contribution levels, and the existence of fixed fees obliges them to set an amount. minimum contribution. It is therefore not a system for all nationals. Thus, to call it national would be contradictory and incompatible with the name, which could damage the credibility of the government.
One of the reasons why China has named commercial pension insurance “national” is probably that it hopes that this system can cover all nationals. But this hope is far from reality in the developed world and is also theoretically impossible. Basically, purchasing commercial retirement insurance is a personal choice, so insurance coverage depends on the supply-demand balance in the market. Governments cannot force people to buy this insurance or take enforcement action to help it get full coverage. In this regard, China will be no different from developed countries.
In conclusion, the “national pension insurance” system approved by the CBIRC is contradictory in name and connotation. Also, it goes against international naming practice and can be confusing in many ways. Therefore, it would be more appropriate to change the name to what it really is, “commercial pension insurance”.
Wang Xinmei is a specialist at Zhejiang University Social Welfare and Government Center.
Contact publisher Michael Bellart ([email protected])
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