To what extent are enterprise annuities similar to the Western corporate model in which both employer and employee make contributions which aren't subject to tax?

Enterprise annuities must be established under trust and they must have an administrator, a fund manager and a custodian. If you do all these good things, you should get tax relief. The trouble is, not everywhere in the country has decided on the tax relief rules. A number of cities and employers have said that enterprise annuities can get tax relief of up to 4% of total payroll, irrespective of whether it is the whole company or only part of the company in the enterprise annuity. Other people have come back with even higher rates, 5-6%; others have said absolutely nothing; others have said we'll talk about it by negotiation.

How many enterprise annuities are in existence?

We don't know exactly how many there are right now - and the central government certainly doesn't know either. China has licensed five trustees, 11 administrators, 15 fund managers and six custodians for enterprise annuities. If you speak to these people they will only tell you what they want you to hear. I'm pretty confident there were more than 100 enterprise annuity plans in place by the end of December and 200 more in the pipeline. It's been talked about but whether it's been announced to employees, documented and money changed hands and invested is another matter.

Are enterprise annuities destined to become the dominant product?

Apart from enterprise annuities, there are a number of other voluntary pension systems in China. There is what I call the Shanghai forced contributions model [under which city governments have bullied employers into making extra contributions beyond the official cap of three times city average pay]; the Chinese insurance companies that have written group pension insurance; and the so-called 11 designated industries that have had their own special pension plans for years. These types of additional pension money are not supposed to enjoy tax advantages but they do. The idea is that they will transfer to enterprise annuity format to qualify for tax relief and to keep the MLSS happy. How quickly this will develop, we really don't know.

What would China Life have to do to move into enterprise annuities?

If I were China Life, I'd want to play it both ways. I'd be pushing for an enterprise annuity license as well as looking closely at my existing portfolio of business where, unlike enterprise annuities, there are no maximum fees or charges. In the long run, enterprise annuities will win if they sort out the tax position. In the short to medium term, a lot of smaller employers have contracts with China Life or Ping An don't want to go to the lengths of having a trustee and a fund manager. They just want to buy a package.

What can be done to provide for the poorer people?

They get state benefits if they are in the urban sector and in the formal workforce. The rural and migrant populations are not covered. What we are talking about is the 550 million people with urban hukou （residence permit）, which might be 350 million when you take out the school kids and the elderly. The compliance rate is less than 50%, even in urban China; in Hong Kong, it's something like 96%. China can't hope to come anywhere near that level, but it certainly has to make huge efforts to boost the compliance rate.