On December 12, China's Ministry of Human Resources and Social Security, Ministry of Finance, State Taxation Administration, Financial Regulatory Authority, and China Securities Regulatory Commission issued the "Notice on the Full Implementation of the Individual Pension System." Starting from December 15, the individual pension system will be expanded from 36 pilot cities (regions) to the entire country. As the trend of population aging intensifies and the demand for elderly care grows in China, the promotion of the individual pension system has become an important national initiative. The system aims to provide individuals with a variety of pension protection options, enhance the sustainability of the pension system, and provide additional security for individual retirement life.

Ⅰ. Content of the Individual Pension System

1. Account Opening Process

Participants can open an individual pension account and a capital account through official online service portals such as the National Social Insurance Public Service Platform, electronic social security cards, or the 12333APP, or at commercial banks that meet the specified regulations.

2. Contribution Mechanism

The responsibility for contributing to the individual pension fund lies with the participant, with an annual contribution cap set at 12,000 yuan. The contribution method is flexible and can be made monthly, in installments, or annually.

3. Investment Options

Participants can independently choose retirement financial products based on their personal preferences to earn returns, with commercial banks offering corresponding investment advisory services.

Ⅱ. Tax Incentive Policies

1. Contribution Tax Deduction

Individuals' contributions to their personal pension fund accounts are eligible for a tax deduction, up to an annual limit of 12,000 yuan, from their comprehensive income or business income.

2. Investment Income Tax Exemption

The investment income earned within the individual pension fund accounts is temporarily exempt from personal income tax.

3. Withdrawal Stage Tax Benefit

The individual pension funds received by an individual are not included in the comprehensive income and are calculated and paid at a preferential tax rate of 3% for individual income tax.

For example, someone's income last year, after deducting exemptions, special additional deductions and so on, was 50,000 yuan of taxable income, corresponding to a personal tax rate of 10%. If he deposited 12,000 yuan of it into his personal pension account, the taxable income becomes 38,000 yuan, and the amount of personal income tax he pays will be reduced. The $12,000 that a person deposits into his personal pension account will not be subject to tax until he retires and receives his personal pension, at a rate of 3%.

Ⅲ. Conditions for Early Withdrawal

In addition to the regular conditions for withdrawal, participants may apply for early withdrawal of their individual pension funds in cases of serious illness, when receiving unemployment insurance benefits under certain conditions, or when receiving minimum living security benefits.

Ⅳ. Investment Risk Considerations

As an investment instrument, individual pensions are subject to market fluctuations and have a long investment horizon. Investors need to carefully select the appropriate pension products based on their own risk preferences and investment objectives. Additionally, financial institutions should provide transparent product information, clearly disclosing the asset allocation and risk levels of pension products to assist investors in making informed choices.

The comprehensive implementation of the individual pension system not only provides individuals with more choices for retirement security but also offers tax incentives. As the system continues to improve and optimize, the individual pension system is expected to play a greater role in the future, promoting both personal life security and economic development.

PHC  Advisory  is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

Would you like to learn more about the business environment in China? Click the link and download our Practical Guides on Amazon! 

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

If you want to know more about doing business in China, please have a look at our previous articles:  

•     Announcement on Adjusting Export Tax Rebate Policies-NEWS-PHC ADVISORY

•     Foreign Work Permits and Social Security Cards Discussion-NEWS-PHC ADVISORY