The State Council, China's Cabinet, issued a guideline on the development of the individual pension system on Thursday.

It stipulates that the system will be based on individual pension accounts, and payment to the account is entirely borne by individuals themselves. The maximum that can be paid into the account is 12,000 yuan ($1,845.6) a year. The document also stipulates some tax preference policies related to the system.

The central authorities have stressed the need to develop a multi-tiered and multi-pillar pension system, so as to actively respond to the aging population and realize the sustainable development of the pension insurance system.

At present, China has already established three pillars of its pension system－basic pensions, enterprise annuities and various pension financial products voluntarily purchased by individuals.

The establishment of the individual pension system is an important measure to consolidate the third pillar, which is now mainly focused on financial products with pension functions issued by various financial institutions, without forming a systematic and comprehensive personal pension system covering the whole society.

In some developed countries, the personal pension account is an important component of the pension system, as well as an important carrier for individuals to invest in qualified pension products and enjoy preferential tax policies. For instance, more than one-third of families in the United States hold an Individual Retirement Account, an equivalent to the individual pension account system China is building.

The increase of expenditure for endowment insurance funds and medical insurance funds has been faster than that of people's income for years. That means, with the fast aging population, China's space to further expand its social insurance for endowment funds is shrinking quickly.

The building of the individual pension system represents a key part of the solution to address the challenge. And it is rolled out on the experience the country has accumulated in managing its social security fund in the financial market over the past few years, which can help effectively reduce the risks the new individual pension system is exposed to.

Everyone can open an individual pension account, according to the document, and that means that the system will be able to achieve maximum coverage throughout society, which will also bring about huge business opportunities to the financial industry.