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The Future of Retirement in China, EDITION The Future of Retirement in China History, Systems, and Review EDITION SIX Lauren Finnie LIMRA International Research . This publication is a benefit of Society of Actuaries and LIMRA memberships. No part may be shared with other organizations or reproduced in any form without SOA’s or LL Global’s written permission. The Future of Retirement in China The Future of Retirement in China Table of Contents Methodology .................................................................................................................................................4 Recommendations .........................................................................................................................................5 The Current State of Retirement in China .......................................................................................................7 Background .......................................................................................................................................................... 7 Population Aging ................................................................................................................................................. 8 The Funding Dilemma ........................................................................................................................................ 10 Summary of Systems ....................................................................................................................................15 System Management......................................................................................................................................... 16 Urban Residents ................................................................................................................................................ 17 State Workers/Civil Servants ............................................................................................................................. 19 Rural Residents’ Pension ................................................................................................................................... 20 Migrant Workers ............................................................................................................................................... 22 Other Funding Sources ...................................................................................................................................... 24 Coverage ............................................................................................................................................................ 28 The Chinese Consumer ................................................................................................................................. 31 Segmenting the Chinese Market ....................................................................................................................... 31 Cultural Considerations ..................................................................................................................................... 36 The Changing Consumer .................................................................................................................................... 42 Retirement Definitions ................................................................................................................................. 45 Technical Definition ........................................................................................................................................... 45 Retirement Goals ............................................................................................................................................... 47 Saving for Retirement ........................................................................................................................................ 48 Market Analysis ...........................................................................................................................................52 Domestic Companies ......................................................................................................................................... 52 Foreign Companies ............................................................................................................................................ 53 Distribution ........................................................................................................................................................ 56 Regulations and Reform Drive Change .............................................................................................................. 60 Opportunities and Innovation ........................................................................................................................... 65 Appendix A. Sample Coverage ...................................................................................................................... 66 Appendix B. Full Questionnaire .................................................................................................................... 67 Section I. Selection Items .................................................................................................................................. 67 Section II. Demographic Questions ................................................................................................................... 70 Section III. Retirement Preparedness ................................................................................................................ 73 Section IV. Retirement Readiness and Managing Risks .................................................................................... 74 Section V. Income Sources ................................................................................................................................ 76 Section VI. Financial Knowledge and Attitudes Towards Products ................................................................... 79 Appendix C. Key Pension Market Details ....................................................................................................... 83 Appendix D. Literature Review — Key Sources .............................................................................................. 84 Appendix E. Insurance Companies in China ................................................................................................... 86 The Future of Retirement in China Methodology • LIMRA and Society of Actuaries partnered to THE PARTNERSHIP conduct retirement studies in Asia 2,013 PARTICIPANTS • 74% workers and 26% retirees ages 35 to 70 • Data collected in 2015 via online and DATA COLLECTION face-to-face interviews TERRITORY COVERED • 23 provinces, municipalities, and regions A special thanks to our Project Oversight Group for their contributions to this study! 4 The Future of Retirement in China Recommendations React positively to the raise of retirement age. With more promotion on awareness and gradual implementation process, supplemented with flexible choice, as well as motivations and/or incentives to those who are willing and able to work longer, the move of raise on retirement age could be a favorable adjustment to the future of China retirement. Create awareness on retirement planning and healthcare. Chinese consumers may already be inclined to save money, but they don’t necessarily have the financial knowledge to allocate funds and use retirement benefits effectively. Awareness is everyone’s responsibility. Promote retirement awareness, including how important healthcare is, for both individuals and employers. Enforce transparency requirements. Ensure transparency requirements are being met when comes to gathering, securing and investing funds, and distributing benefits. Design more diverse products. Design more diverse products like coupled health and retirement products (i.e., long-term care and annuities). Use Chinese retirement ideals to market products. People in China indicate a desire to spend time with family, travel, and enjoy their hobbies during retirement. They also associate retirement with freedom from their employer. They need to be encouraged to be proactive early in their careers in order to ensure that they will be able to enjoy retirement. Explore new marketing strategies to communicate products in a way that takes consumers beyond the price. Use the right marketing language. In order to prevent negative reactions from older consumers, companies should avoid the use of particular marketing phrases that imply “old age.” Instead, they should come up with phrases that suggest older consumers are healthy or energetic despite their age. Keep an eye on the enterprise annuity market. The enterprise annuity system will likely become an important source of supplementary retirement income for China's middle class. As efforts to improve this system mobilize, it is likely that China will remove some of the barriers to entry in this market. Keep your partners close. Existing foreign players in China survive through their partnerships with local firms. Build relationships with intermediaries that have existing brand strength in China. Local firms have the language and local expertise needed to help foreign companies overcome convoluted policies that vary province to province. Revamp your online strategy. 5 The Future of Retirement in China In China, consumers are split between traditional values and rapid modernization, so optimizing multiple distribution channels
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