(Yicai Global) April 21 -- China’s cabinet is close to introducing a private pension scheme that will allow workers to make contributions of CNY12,000 (USD1,862) a year as the country takes measures to address the financial security of its rapidly aging population.

The contribution ceiling may be adjusted according to economic conditions and the progress of the pension system, the State Council said.

People can open their own private pension accounts at banks to deposit money. The funds will be used to purchase financial products such as wealth management products and public funds. The money in the accounts and the income derived from it belong to the account holders.

The accounts will be closed and account holders cannot withdraw money in advance except in the case of special exemptions. Once they reach a certain age or are no longer able to work, they can withdraw their pension monthly or in a one-off lump sum.

Private pensions together with basic endowment insurance, as well as enterprise annuities, which are partly paid by the employer, and occupational pensions, created for staff of government organizations, are the three pillars of China’s pension system.

China’s personal pensions are not mandatory, so improving the attractiveness of the system is crucial to its development, said Zhang Yinghua, executive researcher with the Center for International Social Security Studies at Chinese Academy of Social Sciences.

China has more than 300 million employees who subscribe to basic life insurance, accounting for about 70 percent of the urban workforce.

However, there are around 200 million people in flexible employment in the cities, only half of whom participate in the endowment insurance scheme. Private pensions are an important arrangement for income security after retirement for freelancers, Zhang said.

Editor: Kim Taylor