China:Pilot tax-deferred pension programme will be launched on 1 May

| 17 Apr 2018

A pilot tax-deferred pension programme will be launched on 1 May in Shanghai, Fujian (including Xiamen) and the Suzhou Industrial Park and the trial period will last for one year, announced the Chinese government.

Five government entities – the Ministry of Finance, the China Banking & Insurance Regulatory Commission, the State Administration of Taxation, the China Securities Regulatory Commission, and the Ministry of Human Resources and Social Security – jointly announced the details of the pilot scheme.

The goal of tax-deferred pension is to promote commercial pension insurance in an ageing society that will supplement the government-run basic pension scheme and annuities. Under the proposed scheme, individuals are allowed to defer tax on the portion of income used to buy commercial pension insurance. Upon retirement, they would be able to draw from the fund with the withdrawal proceeds then subject to tax.

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Under an optimistic scenario, about CNY160 billion in insurance premiums can be mobilised every year across the country from the tax-deferred pension scheme; under a pessimistic scenario, the premium income is estimated at about CNY60 billion, according to official media reports.

The personal deduction limit, that is, the amount of money placed into the commercial pension insurance account, shall be determined according to the monthly salary of the subscriber. In any case, the deductible limit shall not exceed 6% of the taxable income of the year or CNY12,000 (US$1,907). Capital gains on the commercial pension insurance account are not taxable for the time being. In addition, the investment income included in the personal commercial pension fund account is not subject to personal income tax for the period of contribution.

When an individual reaches the retirement age set by the state, he or she may receive a commercial pension on a monthly or yearly basis, and the period for obtaining it is, in principle, life-long or not less than 15 years. If a subscriber suffers from disability or a major illness, as stipulated by the pension policy, or dies, he or his beneficiaries may receive a one-time payout of the pension benefits.

For the commercial pension income received when individuals meet the specified conditions, 25% of the payout is exempt from tax, and the remaining 75% will be taxed at a proportional tax rate of 10%.

The tax-deferred pension scheme has been discussed for at least 11 years.

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