On The Investment Model Of Chinese Enterprise Annuity Introduction Life Cycle Fund

According to the “three-pillar” model recommended by the World Bank,China's basic pension insurance which is known as the “first pillar”,on the whole,has been developing rapidly,and has become one of the public pension systems with the largest coverage and benefit payment around the world.As one component of the “second pillar”,enterprise annuity only has a very small coverage,so it's still hard to play a significantly complementary role.Occupational pension,the other component of the “second pillar” has just started developing.As for the third pillar,it is almost blank now.Since the beginning of market investment mechanism in 2006,enterprise annuity has obtained considerable development and made some achievements.As of the end of 2015,75,454 enterprises have established their annuity plans and about 23.162 million employees have participated in these plans.The balance of the annuity fund reached 952.551 billion yuan.Now the development of enterprise annuity in China has encountered two essential issues: the coverage is small,and the present investment mode leads to a low level of efficiency.It is also the biggest problem that China's enterprise pension system must solve and thus the core of enterprise annuity reform.The coverage is small because the enterprise annuity is non-mandatory and has no auto enrollment mechanism.Unopened individual investment alternatives cannot meet the diverse investment needs of different age groups,and thus cannot form long-term capital to obtain long-term returns.In addition,the assessment of long-term capital is based on short-term performance.The root cause of short-sighted investment is the decision makers' lack of principal status,which results in distortions of their investment behavior and potential loss of profits.Since the 21 st century,especially after 2006,the second pillar private pension system has undergone two major changes-the Auto Enrollment Mechanism and the Qualified Default Investment Alternatives(QDIA).The popularization of qualified default investment instruments greatly reduced the complexity of individuals' decision making,which not only greatly increased the coverage of the system,Also improved due to the asset allocation is not reasonable,as a result of a series of problems.This paper analyzes and compares the pension reforms in America(2006),Britain(2008),Australia(2011)and the forced introduction of the default fund in HongKong in 2016.All these reforms started with expanding the coverage of the second-pillar pension by introducing the Auto Enrollment Mechanism and promoting qualified default investment instruments,and thus greatly increased the number of participants in the second-pillar pension plan.These reforms focused on analyzing the effectiveness and the positive influence of the life cycle fund working as a qualified default investment instrument.It helped to optimize the allocation of pension assets so that the risk matched the benefit more reasonably.In addition,the duration of pension liabilities became longer so as to endure appropriate risk fluctuations.The appropriate allocation of equities brought long-term stable returnon these equity investments as well as the whole capital market,which was a virtuous circle and interaction of the long-term pension funds and the capital market.These practices and experience are valuable reference for the reform of enterprise annuity and occupational annuity in China.The next few years is an important window for China to improve the reform of its pension system.At present,the overall top design of the endowment insurance is being developed,the basic endowment insurance of the government and public institutions is merging.The occupational annuity of the public institutions will start using market-based operation mode,and the Trial Measures for Enterprise Annuity and other relevant policies are being revised.We are standing at the crossroads faced with different choices.Expanding the coverage and optimizing the investment model are still the key tasks of the current reform and thus our top priorities.China should speed up the pace of its comprehensively deepening reform of the second pillar pension system.First,to further expand the coverage of enterprise annuity plan,we should introduce the Auto Enrollment Mechanism,increase the tax preferences,improve participation rate,adopt simple enterprise annuity and occupational annuity plan,and take simple reporting procedures.Second,to optimize the investment model,we should change the fact that in an enterprise annuity(including the upcoming occupational annuity)plan all participants have the same rate of return.Employees of different age groups should use different investment strategies and asset allocations.We should establish the QDIA system,and introduce more effective and more suitable mode to meet the demand of pension investment.More specifically,we should moderately open individual investment alternatives,and use the life cycle fund as QDIA.The enterprise annuity policy should be revised and improved on this basis.We should gradually expand the scope of the investments both at the planning level and the product level,increase the alternative investments and overseas investments,and increase the proportion of fund investment in stock,equity and industrial investments.Furthermore,we should loosen the restriction of overseas investments to diversify the risk,allocate the assets globally and thus gain the benefits of global economic growth.