What Is a Superannuation Trust?

Pension trust refers to a form of trust in which endowment insurance agencies treat endowment insurance premiums paid by units and individuals in accordance with relevant laws and regulations as trust assets, and hand them over to financial trust institutions for management and operation. In China, although this pension management method has not yet formed a scale, valuable explorations and attempts have been made.

Pension trust

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Employers and employees contribute monthly to form a pension

Pension trusts are established by trust contracts signed between pension insurance agencies and financial trust institutions. The trust management of pensions mainly involves four main bodies: the pension insurance agency is the client, the financial trust agency is the trustee, the employees are the beneficiaries, and the social insurance management agency is the supervisor. The client is responsible for the registration of pension insurance, collection of insurance premiums, pension distribution, etc.

management

In China, facing the trend of WTO accession and population aging, the use of trust system and capital market to realize the preservation and appreciation of pension insurance funds has become an important part of improving China's social security system. The successful development of pension funds in the market requires the following major prerequisites: ^[1]

1. Legal documents

The existing laws and regulations on the pension insurance system should be adjusted. The investment fund law and trust law that are being drafted should pay attention to the characteristics of social insurance funds and make them meet the relevant legal requirements of social insurance funds entering the market.

2. Regulatory conditions

There are two main modes of international operation and supervision of pension insurance funds:

The first is prudential supervision. Supervisors rarely interfere in the daily activities of the fund. They only intervene when the parties request or the fund has problems. The supervisors mainly rely on intermediaries such as auditors and actuaries to supervise fund operations.

The second is strict limit supervision.The supervisory agency has strong independence and greater power.In addition to requiring the fund to meet the minimum prudential supervision requirements, it also restricts specific aspects such as the structure, operation and performance of the fund. According to these regulations, the daily operation of the fund is closely monitored through on-site and off-site supervision.

Due to the low level of development of the capital market and various types of intermediary agencies in China at this stage, the relevant legal and institutional environment is not yet perfect, and a strict limit supervision model for pension insurance funds should be adopted. The recently established Council of Social Insurance Funds directly under the State Council, as the state's regulatory agency for social insurance funds, is an important preparatory preparation for the entry of pension insurance funds into the market.

3. Tax conditions

Regardless of the payment of premiums or operating income, pension insurance should enjoy preferential tax treatment. In most countries, pension funds are different from other types of investment institutions. Pension funds benefit from deferred tax payments. Payments and accumulated interest and capital gains are tax-free. Japan adopted the pension trust method to manage the "eligible tax system for pensions" in 1962.It is a pension system established after the tax law is modified to meet the necessary conditions stipulated by the law. The starting point for a trust bank to handle a pension trust. Regarding the tax system of China's endowment insurance fund, it should be legally positioned.

4. Capital market conditions

A capital market with sufficient liquidity is one of the basic conditions for the safe entry of pension funds into the market. The capital market and the development of pension funds have a complementary relationship. From the perspective of major developed countries, countries with large pension funds (such as the United Kingdom and the United States) often have well-developed capital markets, while in countries with small pension funds Such as Germany, Italy) capital markets (especially the stock market) are less developed. One of the main characteristics of a developed capital market is that the market has sufficient liquidity. Liquidity can be divided into four major areas:

Width, determined by the trading range of certain securities;

Depth, the number of securities that can be traded in a certain trading offer;

Timeliness, time spent on a transaction;

Elasticity, the time between the price returning to the original level and the market absorbing large purchase orders. ^[1]