2010-07-14 18:08

Supervision of the investment of China's pension fund has become a more important issue than the pension system itself, Zheng Gongcheng, professor of Renmin University of China, said at a seminar Tuesday, the 21st Century Business Herald reported.

Pension fund-related issues, such as the investment operation of personal accounts, the social security fund and enterprise annuities began to get more attention amid expectations of inflation and worries that the fund may be devalued, the report said.

One of the reasons is that the earnings of the fund could not catch up with the rise of consumer prices for a long term, which led to huge losses on the account, the paper reported.

According to current regulations, China's national pension fund is only allowed to be deposited in banks or used to purchase treasury bonds. After subtracting the inflation rate, the average interest rates on personal-account funds invested in one-year bank deposit, three-year bank deposit and three-year treasury bonds are -0.11 percent, 0.73 percent and 1.25 percent respectively.

However, enterprise annuities, which can be invested in limited financial tools, had an investment interest rate of 14.26 percent since 2005. The national social security fund, which has more choices in investment, had a total return from investment of 244.8 billion yuan ($36.13 billion) with an annual interest rate of 9.75 percent in the nine years since its establishment.

Taking last year as an example, the national social security fund had an interest rate of 16.1 percent, enterprise annuities made 7.78 percent and China’s pension fund achieved less than 2 percent.

Zheng Bingwen, a researcher at the Chinese Academy of Social Sciences, said that to maintain the value of the pension fund required keeping the nominal value, keeping in step with the CPI and catching up with average wage growth to maintain its purchasing power.

Chen Liang with the Ministry of Human Resources and Social Securities pointed out that the operation of China’s pension fund should absorb experiences in operating enterprise annuities and the national social security fund to increase investment income and avoid devaluation.