The construction of pension security systems in various countries has a critical goal: to establish a balanced mechanism for sharing pension responsibilities among governments, businesses, and individuals. This aims to create a more resilient and sustainable pension security framework.

Over the past thirty years, China has significantly progressed in developing its pension security system, creating a framework characterized by a three-pillar structure. This includes the first pillar of basic pensions, which serves as a foundation, the second pillar comprising corporate pensions, and the third pillar of personal pensions acting as supplements. However, the rapid acceleration of an aging population and the continuous increase in life expectancy present substantial challenges to the balanced development and sustainability of this system. Issues such as the over-reliance on basic pensions, limited coverage of corporate pensions, and insufficient personal pension savings have emerged. Public data indicates that in 2023, the total scale of China's pensions reached approximately 15 trillion yuan, accounting for only 12% of the national GDP. Basic pensions represented over 70% of this total. In contrast, according to United Nations statistics, the total pension reserves of OECD countries comprised 87% of their GDP in 2022, with most of this being derived from corporate and personal pensions, while basic pensions accounted for only about 12% of GDP.

In recent decades, China has made efforts to establish a balanced and comprehensive social security system. However, the reality is that the first pillar, basic pensions, remains the primary source of retirement security for the average citizen. Although the second pillar, corporate pensions, has seen rapid accumulation since its inception in 2004, its coverage remains limited. By the end of 2023, less than 1% of registered businesses had established corporate pensions, and only about 5% of employees in enterprises had access to these pensions. In recent years, the Ministry of Human Resources and Social Security, alongside local governments, has implemented various measures to promote the expansion of corporate pensions, particularly focusing on supporting small and medium-sized enterprises, including private and foreign-owned businesses. However, the effects of these initiatives are expected to take time to manifest.

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The third pillar, personal pensions, is still in its infancy in China. The State Council issued guidelines in April 2022 to promote the development of personal pensions, marking the official establishment of a personal pension system. In November 2022, pilot programs for personal pensions were launched in 36 leading cities or regions nationwide, with a nationwide rollout expected this year. By using tax incentives, personal pensions encourage individuals to plan and save for their retirement. In the two years since the pilot programs began, the number of personal pension accounts has exceeded 60 million, providing an essential channel for citizens to expand their sources of pensions and enhance their retirement savings.

However, the rapid growth in the number of personal pension accounts raises concerns about low contribution rates and the lack of diversity in financial products offered. Data indicates that many personal pension accounts have yet to receive contributions, and of those that have, most are only allocated to low-risk bank deposit products. In the long term, this could lead to suboptimal returns on pension savings. This situation reflects both an insufficient understanding of the personal pension system among the public and the difficulty ordinary citizens face in navigating complex financial products. Compounding this issue are the recent fluctuations in the capital markets, which have negatively affected investment returns, resulting in reduced willingness to contribute and invest.

The United Kingdom is one of the earliest countries to establish a modern pension security system. After over a century of reforms and development, by the end of 2023, the UK's pension fund stood at around £2.5 trillion, making it the second largest in the world. The UK has established a three-pillar pension system that includes a first pillar of state pensions for basic needs, a second pillar of occupational pensions, and the third pillar of personal pensions as supplements. The personal pension market in the UK began in 1986 and has grown to around £500 billion.

After nearly forty years of development, the UK personal pension system has accumulated rich practical experience in areas such as product design, regulatory frameworks, and investor education. These experiences provide valuable insights for China’s personal pension initiatives.

(1) Diverse Personal Pension Product Offerings The UK has established a diversified personal pension product system that caters to clients with varying income levels, risk preferences, and retirement planning needs. For instance, clients with higher income and investment capabilities can opt for Self-invested Personal Pensions (SIPPs), which require higher contribution minimums and allow for broad investment choices, including more than 4,000 funds and assets like real estate and precious metals, primarily through self-directed investments.

For clients with lower contribution capabilities or risk aversion, there are Stakeholder Pension Plans (SPPs). These accounts can be opened with a minimum of just £16 and have limited investment options. They focus on steady investments and have lower management fees as they typically avoid stocks and non-standard assets.

Additionally, the UK’s personal pension system emphasizes the management of the payout phase. Given that people are living longer, the duration of receiving pensions can span several decades, making it crucial to ensure that pension funds maintain their value and grow. Thus, UK pension management institutions have designed various payout products, such as Active Retirement Management products, which allocate clients’ pension funds into three pools according to predefined percentages of 15%, 20%, and 65% across low, medium, and high-risk investment strategies. Clients can withdraw pensions from the low-risk pool while the remaining funds are invested using more aggressive strategies to enhance the returns during the payout period.

Overall, the UK’s personal pension market, by offering products tailored to different risk appetites and investment strategies, empowers the public with diverse retirement investment options and has established effective channels for building pension savings. Moreover, personalized investment arrangements reflecting different savings stages throughout an individual's life cycle enhance the value preservation and appreciation capabilities of pensions, providing individuals with more confidence to engage in long-term retirement savings.

(2) Comprehensive Tax Advantage Policies The UK’s pension tax advantages have two notable characteristics: first, the seamless integration of second and third pillar pensions sharing tax allowances; second, the policy is highly detailed and can provide differentiated tax benefits based on clients' income levels and withdrawal methods while maintaining both incentive and fairness.

In April 2023, a new wave of tax reform concerning pensions was introduced in the UK, removing the previous lifetime tax-free allowance cap of £1.07 million while increasing the annual basic tax-free allowance from £40,000 to £60,000. Adjustments were also made regarding tax advantages for high-income earners and during the withdrawal phase. These reforms aim to further stimulate pension savings levels while encouraging the public to extend their working lives and enhancing social and economic vitality amid sluggish post-pandemic economic recovery.

(3) Technology-Driven Financial Structural Development Long-term pension savings require individuals to plan for their retirement decades in advance and to resist short-term consumption temptations. To help people overcome inherent inertia regarding long-term retirement investments, as well as to encourage them to maintain consistent saving practices amidst market fluctuations, both government and market institutions need to provide supportive foundational infrastructures and professional services. This includes offering inclusive pension planning, investment advice, and information access, while continuously reducing transaction costs to promote prolonged savings.

In this regard, the UK has continually bolstered its financial infrastructure with technology, offering comprehensive support for pension investments. Some key practices include establishing the Pension Dashboard Programme (PDP), which provides citizens with a one-stop, visualized pension information query service. This initiative, launched in 2020 and expected to go live in 2028, connects with thousands of pension providers through data links, enabling citizens to easily and thoroughly understand their personal pension savings and form realistic investment expectations, guiding them in their pension planning and progressively enhancing their savings.

Furthermore, the development of intelligent investment advisory technologies has provided accessible, user-friendly investment consulting services, improving the effectiveness of investor education. As artificial intelligence continues to evolve, the capacities of these advisory services have matured, solving the issues of high costs and limited availability of traditional advisory services. Intelligent advisory solutions allow ordinary customers to access the same premium investment consulting services previously available only to high-net-worth clients. Moreover, these services can enhance the quality of investor education by delivering timely professional guidance during participants' pension investment journeys, ensuring that educational initiatives achieve their objectives more effectively.

Lastly, establishing an effective pension product evaluation mechanism enhances product transparency and competitive viability. In 2023, the UK government initiated the Value for Money project to quantitatively assess thousands of pension products based on factors like investment returns, costs, and service quality. This project grades these products into three categories: recommended, requiring improvement, and not recommended, assisting citizens in filtering quality pension offerings and avoiding discouragement due to overwhelming choices that may dampen their investment enthusiasm.

The third pillar of personal pensions is an indispensable component of China's multi-level, multi-pillar pension security system, taking on the crucial historical mission of increasing pension replacement rates, alleviating the repayment pressures of basic pensions, and providing diversified choices for the populace. Currently, the savings structure among Chinese residents predominantly revolves around short-term bank deposits and financial products, indicating a significant shortage of long-term pension savings. As the personal pension market steadily matures, transitioning short-term savings into medium- to long-term pension investments will also aid in the stable and sustainable growth of China's capital markets.

To enhance the allure and implementation effectiveness of the personal pension system in China, insights from UK and other overseas markets suggest focusing on three aspects. First, enrich the variety of product forms to elevate investment service capacities. Presently, although over 750 personal pension products are available, most are merely adaptations of traditional financial products, lacking in differentiation and appeal. Second, refine tax advantage policies to broaden system coverage. The current annual tax allowance of 12,000 yuan per individual is relatively low, having limited incentive for high-earning individuals while excluding low-income groups from participation due to their lack of income tax obligations. Thus, the policy's inclusiveness is quite limited. Third, reinforce supportive policies and systems concerning pension planning, investor education, and related frameworks. Most citizens lack the professional capability to select products and plan long-term effectively, necessitating professional institutions to provide investment consulting and pension planning services. Concurrently, the government should spearhead initiatives for investor education and the development of product platforms that improve public access to low-cost pension investment opportunities.

From an international perspective, an essential goal in constructing pension security systems in various countries is to establish a balanced mechanism for sharing pension responsibilities among governments, corporations, and individuals. This aims to create a more resilient and sustainable pension framework. Beyond basic pensions, personal pensions and corporate annuities occupy critically important roles in ensuring quality retirement living for the public. The third plenary session of the 20th Central Committee of the Communist Party of China proposed accelerating the development of a multi-level and multi-pillar pension insurance system, expanding the coverage of the annuity system, and promoting the establishment of personal pensions. I believe that through the combined efforts of the government, market institutions, and the public, a consensus on how to build a high-quality pension security system will emerge, while fully leveraging and learning from international experience, continuously enriching the product and service supply, and enhancing the construction of the financial infrastructure. China's personal pension market is bound to flourish.