Chinese Insurers Rise on Pension Tax Deferral: Hong Kong Mover

Chinese insurers rose in Hong Kong trading after the government said it will allow tax deferral for employer pension plans, a move Ping An Securities Co. said would help double such assets.

China Life Insurance Co., the nation’s biggest insurer, advanced 1 percent to HK$25.60 at the close of trading in Hong Kong. The second-largest Ping An Insurance (Group) Co. climbed 2.2 percent to HK$76.00, while China Pacific Insurance Group Co. jumped 3.2 percent. The benchmark Hang Seng Index added 0.3 percent.

The Ministry of Finance’s Dec. 6 announcement that exempts contributions to employer pension plans from personal income tax till actual payment may boost such assets to 1.3 trillion yuan ($214 billion) in 2016, from 537 billion yuan as of June 30, according to a Dec. 8 report by Ping An Securities. Shares of China Life and Ping An have rallied 20 percent in Hong Kong since Nov. 15 after Chinese top leaders promised at the Communist Party’s plenum to quicken such reforms as part of a “multi-layer” social security network.

“The fast delivery of the promise will be, in our view, an additional sweet surprise for the market,” Sanford C. Bernstein Co. analysts, led by Hong Kong-based Linda Sun-Mattison, wrote in a report today. “Longer term, a large employer pension segment will help bring in stable earnings underpinned by life protection and management fees.”

Voluntary Pensions

About 59,400 Chinese companies, mostly big state-owned enterprises, had set up such voluntary employer pension plans by June, covering 19.6 million employees, according to Ping An Securities. Insurance companies, led by Ping An and China Life, managed 47 percent of the pension assets, the biggest share followed by fund management firms’ 43 percent, according to the brokerage’s report.

Starting Jan. 1, employer contributions to the pension plans, as well employees’ own contributions, capped at 4 percent of their salaries, become deductible from personal income tax until the individuals start to receive payments from the account, according to the statement on the finance ministry’s website. Investment returns from such pension plans are also exempted from the tax, according to the rules.

The government statement failed to deliver an expected tax deferral policy for commercial pension plans that individuals can buy from insurers, which would lift annual growth in the nation’s life-insurance premiums to above 10 percent, Guotai Junan Securities Co. analysts led by Zhao Xianghuai wrote in a Dec. 8 report. A government-led pension plan remains the biggest component, at more than 70 percent, of China’s retirement savings, while employer programs account for 14 percent, the report said.