China to transfer state assets to pension fund in bid to boost shortfall

BEIJING (Reuters) - China will begin a pilot program this year to transfer shares in state-owned firms to social security funds in an effort to make up for shortfalls in the nation’s pension scheme, according to a notice published by the cabinet on Saturday.

The new policy calls for an initial 10 percent of equity in state firms to be transferred to the national pension fund, with the plan limited to a small number of central and provincial firms in an initial trial to start this year.

China is working to expand resources of its pension funds as the population ages and obligations are set to rise. Many provinces are already under severe pressure to meet pension repayments.

A recent effort has seen Beijing for the first time allow pension funds, whose investments had been limited to low-yielding bank deposits and treasuries, to invest in stocks and other assets.

The latest plan would see central and regional social security funds directly hold shares in state-owned companies, allowing retired workers to benefit from the dividends generated by government-owned assets.

The State Council, China’s cabinet, said in a statement the plan would help to develop a more fair and sustainable pension scheme, while also promoting reform of state firms.

“Over the course of economic development and the aging of the population, pressure on basic pension payments has continuously increased,” the council said in the statement, which was dated Nov. 9 but released on Saturday.

“In order to fully achieve generational equity and ensure achievements from developments of state firms are shared by all, it has been decided to transfer a portion of state-owned capital to fortify social security funds.”

According to the plan, shares in five to seven central state firms will be transferred this year, with the program to be expanded next year.

Pension funds, including the National Council for Social Security Fund that will hold the equity in central state firms, are not allowed to sell shares for at least three years, the notice said.

The finance ministry said on its website that the scheme would only impact a small number of listed state firms and would not lead to a change in the capital structure of listed state firms.

Reporting by Elias Glenn; Editing by Robert Birsel