What Is an Annuity Factor?

Occupational annuities refer to the supplementary endowment insurance system established by government agencies and their staff on the basis of participating in the basic pension insurance of government agencies. ^[1]

Occupational annuities refer to the supplementary endowment insurance system established by institutions and their employees on the basis of participating in the basic endowment insurance of institutions and institutions. ^[1]

Occupational annuities can be divided into two basic models: treatment and payment, namely DB and DC. Foreign public officials implement the DB model. Enterprise supplementary insurance is the enterprise annuity. The mode has gradually changed to the DC mode. Since the 21st century, the DC mode has surpassed the DB mode.

Occupational annuities are divided into pay-as-you-go, fund accumulation, and partial accumulation types based on how funds are raised. Public employee endowment insurance is generally implemented on a pay-as-you-go basis. Enterprise employee endowment insurance is mainly implemented on the basis of complete accumulation of funds, and some countries have implemented partial accumulation. According to the organization and management of professional annuities, there are trust management types represented by the United Kingdom and the United States; there are company types managed by insurance companies according to contracts; and there are traditional internal management types represented by Germany.

The basic characteristics of occupational pension plans in various countries are:

(1) Occupational annuity plans in most countries are voluntary;

(2) Contributions shall be borne by employers and employees;

(3) The fund can conduct market-oriented operations;

(4) The payment and operation of the occupational annuity plan enjoy the national tax exemption preferential policies.

The function of occupational annuity is basically the same as that of enterprise annuity, mainly including:

First, supplementary pensions. In essence, occupational annuity is a deferred payment of employees' wages. The purpose of this deferred payment is to prepare for future retirement and retirement, in order to avoid the decline in living standards caused by insufficient basic pension insurance. It is said as a supplementary pension insurance. From this basic function, we can also conclude that occupational annuities have the effect of alleviating the financial pressure of the state. Therefore, occupational annuity is a supplement to basic endowment insurance, which plays a very important role in reducing the replacement rate of basic endowment insurance and alleviating financial pressure.

Second, welfare incentives. The essence of occupational annuity is to transfer part of the employee's current salary to retirement. For institutions, if it is used as a means or tool for human resource management, the program can give employees incentives in terms of compensation and benefits, and improve employees. Work efficiency and enthusiasm can stabilize the workforce of the unit. On the other hand, it can also be used to attract and retain some outstanding management and technical talents and improve the unit's overall strength.

Third, reasonable tax avoidance. From the development history of enterprise annuities, countries around the world have given certain tax benefits to enterprise annuities. Although there are certain tax benefits for corporate annuities in the current tax legal system in China, the tax benefits for occupational annuities have not been clearly defined, but from the perspective of policy guidance, the government will pay fees for units that implement occupational annuities, It is an inevitable trend that tax concessions are given to individual contributions and investment benefits of professional annuity funds.

Fourth, resource allocation. Occupational annuity assets generally enter the financial capital market in the form of funds, and provide diversified individuals with pooled funds to realize the transfer of economic resources across time, space and industry. By providing this transfer, individuals can optimize the distribution of resources during the life cycle, and at the same time, resources can be optimally allocated to the most efficient uses. Enterprise annuity funds are a major source of long-term capital in many countries. The investment of funds is relatively free, which can generate higher returns and optimize the allocation of funds. Funds formed by professional annuity plans also have this function.

1. Low coverage. In 2013, the coverage of enterprise annuities was only six or seven million people, accounting for about 6% of the national basic pension insurance participants. The reasons for the low coverage are various, which also indicates that the development of enterprise annuities is still in the initial stage of development.

2. Low target replacement rate. When reforming the enterprise pension insurance system, the initial focus was on basic pension insurance, and insufficient attention was paid to supplementary pension insurance. The average replacement rate of basic social endowment insurance is 60% to 70%. This replacement level can maintain the daily life of employees after retirement. It is not low enough to be intolerable or low enough to stimulate the efforts of enterprises and employees to increase the demand for enterprise annuities. With the advent of an aging society, the broad coverage basic endowment insurance will continue to increase the burden on the state finance, and the pressure on payment is increasing. Therefore, the replacement rate of the basic endowment insurance needs to be appropriately reduced; at the same time, to ensure and improve the living standards of retirees It is necessary to encourage enterprises to establish supplementary endowment insurance and gradually increase the replacement rate of enterprise annuities. If the target replacement rate of basic pension insurance is implemented at 40% to 45%, in order to ensure that the standard of living after retirement is not affected, people's demand for corporate annuity will naturally increase, and the target replacement rate and coverage of corporate annuity will also increase accordingly, and Correspondingly, it can reduce the financial burden and improve the economic affordability of the national endowment insurance.

3. Enterprise annuities are voluntary rather than mandatory. The state has not passed legislation requiring qualified enterprises to provide enterprise annuities for employees, but only requires conditional enterprises to establish enterprise annuities for employees. China's economic development is fast, but the economic level is still not high. Most enterprises, especially small enterprises, have no energy and financial resources to pay attention to voluntary policies, and they have been struggling to cope with mandatory policies alone. In this way, the responsibilities that were originally shared by the basic old-age insurance and corporate annuity all fell on the basic old-age insurance with compulsory regulations. Because of its non-mandatory nature, the coverage of corporate annuities was low, which also hindered the basic adjustment The possibility of a target replacement rate for endowment insurance. Once the target replacement rate of basic endowment insurance is reduced, and enterprise employees lacking enterprise annuities will have a significant gap in their retirement life security. It can be seen that related policies such as voluntary or compulsory enterprise annuity, coverage rate, and target replacement rate are complementary and interrelated. As for enterprise pension insurance, it is only possible to carry out supporting reforms step by step, and it is not possible to make major changes in the content of a single policy.

4. Enterprise annuity funds need to strengthen operations and supervision. Enterprise annuities are fully accumulated in the employee's personal account. For a long period of time before employees retired, funds were continuously accumulated and deposited. The existence of a large number of funds requires strengthening the operation and supervision of the funds, reducing the depreciation of the funds, and thereby realizing the preservation and appreciation of the funds. The enterprise annuity fund is related to the development of the capital market. If the enterprise annuity fund can be effectively put into operation in the capital market, it will obtain the corresponding investment return: while the investment operation of the large-scale enterprise annuity increases the capital supply, plus its payment waiting period is Growth is also a powerful tool to promote the development of capital markets and financial innovation. However, at present, China's capital market is imperfect, and the conditions for enterprise annuity funds to enter the capital market are not mature enough, and related supporting policies have not kept up, so that enterprise annuities have been kept out of the capital market. Most enterprise annuity funds are used to deposit in banks and buy government bonds, and the investment income is low.

Chu Fuling, director of the Department of Social Security of the School of Insurance, Central University of Finance and Economics believes that the establishment of the occupational annuity system is due to the establishment of a multi-level pension insurance system in China.

Chen Xiaoen, a deputy to the National People s Congress and former director of the Zhejiang Provincial Department of Labor and Social Security, said that in order to maintain the pension benefits of employees in public institutions, a professional annuity system should be established. Corresponding to the enterprise annuity in the enterprise, it can be called occupational annuity in the institution.