Pension fund

    THE volatile Chinese stock market has caused some to worry that investing pension funds in the stock market is dangerous. Who would make up for losses if a stock investment fails?

    Nevertheless, there is no reason to panic over safety because only a small part of pension funds will be invested — at most 30 percent of a pension fund can be approved for stock investment.

    Pension funds will be invested in a diversified portfolio of stock shares, equity funds, hybrid funds and equity-linked annuity products to hedge risks, and the investments will be backed by an insurance plan.

    There are still some people who assert that pension funds should be left as they are. But those detractors do not realize the urgency and significance of reforming the old-fashioned method of pension fund management.

    Pension funds in China are not managed on the national level, and a large proportion of pension funds are in the charge of city-level and county-level governments who won’t give up control to provincial and municipal governments in the short term. This divided management has resulted in problems like pension fund embezzlement. Meanwhile, the return rate for pension fund investments has been as low as bank interest rates because of its simplified investment, not even catching up with the CPI growth.

    Reforming the current pension fund system will prevent it from worsening by injecting new blood into it. If the government doesn’t diversify the way pension funds are invested and continues to let the money “sleep” in the bank and depreciate, it will continue to face the increasing burden of paying out pensions without the support of more money coming in.

    China’s stock market is vulnerable, and if the government doesn’t assess stock investment risks and hastily pours money into a volatile stock market, the result would be worrisome. However, the latest plan is a fresh start that deserves more supportive policies.

    Lei Xiangping via email