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China Issues National Social Security Fund Regulations

The National Social Security Fund Regulations recently promulgated by the State Council will take effect on 1 May 2016.

The Regulations make it clear that the National Social Security Fund (NSSF) serves as China’s strategic reserve for the country’s social security cause and its assets are administered and operated by the National Council for Social Security Fund (NCSSF). The funding sources of NSSF include fiscal allocation from the central government, transfer of state-owned capital, fund investment proceeds and other approved fund-raising means. The fund is intended to supplement and adjust the social security spending such as pension insurance during the peak of population aging.  

Market players said that the Regulations are packed with information, providing a legal basis for social security funded by state-owned capital as the new rules take effect.

According to the Interim Measures on the Investment Management of the National Social Security Fund, the funds of the NSSF come from four sources: capital and equity assets derived from reduction or transfer of state-owned shares, funds allocated by the central government, funds raised by other methods approved by the State Council, and investment returns. 

The new Regulations classify the capital and equity assets derived from reduction or transfer of state-owned shares as the transfer of state-owned capital, which provides a legal basis for social security funded by the transfer of state-owned capital. The specific details of the transfer such as the proportion of transfer, whether it is transfer of ownership or transfer of dividend entitlement or other forms of transfer still awaits the release of the detailed rules.

On the investment of basic pension which raises public concern, supplementary detailed rules are also needed. Currently, the proportion of investment in basic pension equity assets is not allowed to exceed 30%, while greater flexibility is given to the social security fund equity assets, with the proportion of securities investment funds and equity investment not more than 40%.

The Regulations put forward that the finance department and social insurance administration department under the State Council will draw up specific measures on the management and operation of the NSSF, subject to the approval of the State Council. This means that the basic pension entrusted investment may require the introduction of separate investment operation rules issued by the NCSSF.

According to the Regulations, the state determines and regulates the size of the NSSF according to the population aging trends and economic and social development. Hence the size of NSSF will be accordingly linked to the trends in population aging, and economic and social development. In the future the fund size may grow faster with intensified population ageing. At present the main funding source of NSSF is from budget allocations.

For details of the Regulations in Chinese, please see:

http://www.gov.cn/zhengce/content/2016-03/28/content_5059035.htm

Content provided by Picture: HKTDC Research
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