An Analysis On Chinese Pension Insurance Fund Asset Allocation Strategy

Pension insurance is the money paid out to retiree to ensure their basic needs are met after retirement.The system is a vital part of the social welfare system.The insurance,also known as the elderly insurance,is funded by a mandatory social insurance premium required to be paid by the government.The money collected is pooled together to form the elderly pension fund,which is invested and distributed to pensioners later.In China,the pension insurance fund can be divided into three parts:the basic old-age insurance fund,independent enterprise annuity,the supplementary pension and the pension insurance business.In other words,the state,enterprises,and individuals jointly assume the peaking pension expense that is brought about by the aging society of China.This paper focuses on the basic old-age insurance fund part of the pension insurance funds.Currently,the pension fund is facing many challenges such as limited investing channel and low returns.Due to safety concerns,besides reserving 2 months of expenses,the pension fund can only buy state bonds and bank deposit,exposing itself to interest rate risk and inflation risk.In response to the challenge,in August 2015,the Sate Council issued the " Measures for the Administration of Investment in Basic Pension Insurance Funds "to encourage the fund to invest diversely.However,per the experience of the social security funds,which only get listed 3 years after it was allowed to do so by the "National Social Security Fund Investment Interim Measures",the adaptation of such diversified strategy will likely be a slow one.At the same time,the proportion of fund that is allowed to be invested in the stock market is severely restricted by regulations.Furthermore,it will take time to form the necessary policies to enable the pension fund's entry to the stock market.The pension fund investment strategy will likely resemble the social security fund model,but it is highly uncertain how such model will be implemented in the case of elderly pension fund.On the other hand,the pension fund's return on deposit and state bonds are regulated by the PBOC,such rate is often lower that the market rate.To make the matter worse,China is currently experiencing a negative interest rate environment,all these obstacles make the goal of conserving capital and Improving capital return a very challenging one.This paper analyzes the current asset allocation strategy of the elderly insurance fund by the means of comparative analysis and empirical analysis.The paper also analyzes and summarizes the risks and return of portfolio assets.More specifically,by analyzing the return of CPPI and TIPP portfolio under different market circumstances,the author deduces an optimized ROC-TIPP strategy that is based on the TIPP portfolio strategy.The effectiveness of the ROC-TIPP is further validated by the used of empirical testing with historic data.The ROC-TIPP strategy is an optimized strategy that is tailored to the needs of the elderly pensions fund.At the same time,the strategy can also be applied to other pension funds that are facing similar challenges.