Shanghai will launch a pilot program to offer tax benefits to entice the city's aging population to buy commercial pension insurance from May 1, said a statement by the Ministry of Finance yesterday.
Under the program, buyers of commercial pensions will enjoy tax exemption of up to 1,000 yuan (US9) of their monthly income.
The pilot stipulates that the eligible commercial pension must be invested in low-risk or risk-free areas, and needs to be approved by the ministry, according to the statement.
The scheme will also be launched in Fujian Province and Suzhou Industrial Park and will run for one year.
Unlike markets where the burden of social security is shared between the government, employers and individuals in a three-pillar system, China's pension coverage is heavily reliant on state funding.
To meet the challenges of a rapidly-aging population, China issued a guideline last July to develop by 2020 a well-regulated commercial pension insurance system to provide support for commercial pension plans of individuals and families as well as employees.
The guideline encourages commercial insurers to provide support for the pension system and to take part in investment and management of basic pension funds and the national social security fund.
"Commercial pension insurance, just like social security, is a lifeline for ordinary people," Premier Li Keqiang said at a State Council executive meeting.
"We must ensure that the funds are managed safely and reliably," Li said.