Since China opened its doors to the world in 1978, the economic transformation has been nothing short of staggering.
What’s less well known is what this economic modernisation has meant in social terms. China is building its welfare state from the ground up; nowhere has this been more evident than in its retirement incomes policy.
Certainly my eyes were opened to this issue on a recent trip to China as part of an official federal government delegation. In high-level discussions with Chinese officials and business executives, I was given a deep insight into China’s financial services sector, with a focus on retirement incomes policy, and came away with two indelible impressions.
First, although they face enormous challenges, there is an understanding of and a strong will to tackle those challenges. Second, there is keen interest in our financial services sector. They are looking to Australia in the financial services and professional advisory areas, whether it is joint ventures, partnerships or upskilling. Australian companies that move quickly to nurture this opportunity in China will reap the rewards.
But before teasing out this topic, I think there will be value in giving a snapshot of the Chinese retirement system. Its chief characteristics are:
• Demographics: <50% rural; >50% urban
• Structure: trust
• Retirement: male 60; female 55
• Life expectancy: male 80; female 80
• Three-pillar system: enterprise and individual; enterprise annuities; private individual
• System portability: DC – limited portability; DB – no portability
• Pension: Lump; annuity
• Asset allocation: Restricted
• Risks: Ageing; lower economic growth; labour shortage in 20 years
In the wake of the global financial crisis, China has looked to diversify beyond traditional markets in the United States and Europe, not only in terms of investment but as a source of the skill set their growing economy so badly needs. There is no better example of this than in the professions such as accounting, administration, financial services advice and investment advice, areas where Australia has world-class expertise. China is well aware of our global reputation in these fields; this is why I envisage exciting export opportunities in China for Australian professional services firms.
Obviously, how their superannuation system is developing had particular appeal to me. I discovered they have some of the same problems as we do; both countries have to grapple with the issues posed by longevity, adequacy and sustainability.
In this context it was understandable that an address by Jeremy Cooper, as the pivotal figure in the government’s inquiry into our superannuation system (the report, which incidentally gave the SMSF a clean bill of health, was handed down in 2010), attracted a lot of attention.
Jeremy outlined what he saw as the strengths and flaws of our system. On the credit side of the balance sheet, he pointed to the compulsory nature of the Superannuation Guarantee, as well as the combination of government involvement, a trustee system and private fund managers. What it has given Australia, Jeremy explained, is a nation of long-term savers in a system that sensibly combines market solutions and government oversight.
On the debit side, he pointed to the lack of financial literacy, how market volatility has become the new norm, increasing life expectancy, as well as the need to increase investor awareness and engagement.
The latter point was my cue to highlight the SMSF sector which, to my pleasant surprise, was attracting a lot of interest in the forums. In particular, there was interest around the voluntary contribution (Pillar 3) part in our system, not surprising perhaps when you consider that two of the three pillars of their retirement system are voluntary contributions systems.
That, combined with the fact that the Chinese are known to be terrific savers, provides the ordinary Chinese with a good grounding in understanding the benefits of the SMSF sector, as well as professional advice and services.
Such trips are invaluable. In this instance it was a timely reminder that the Australia-China relationship is not just about coal and iron ore. For those of us in the services sector, there are real opportunities in China. I know SPAA, for one, will be looking to develop them.
Andrea Slattery is SPAA's chief executive officer.