Preliminary Preparations

The analysis on this client¡¯s compensation system that Taiping Pension conducted found two major problems: firstly, there was a need to provide short-term supplementary old-age arrangements in addition to basic pension funds for the retired and about-to-be-retired employees. The second result was headed for in-service employees: the employer lacked thinking ahead and building a forward-turned long-term occupational annuity plan. Together we decided then for working to solve this lag.

In the meantime, this enterprise has set up a management committee ¡°Enterprise Annuity¡±, including a leadership group and a working group, and clearly defined the relevant duties. Moreover one decided to work together with annuity experts to provide trainings in expert knowledge on pension schemes and current policy environment analyses for all group members. The working group subsequently formulated a detailed timetable and weekly plans.

The objective of plan building: In-service employees can enjoy a substitution rate target made in combination with their income level; retired employees are not included as participants in the EA scheme but other types of compensation plans are available for them.

With respect to the trustee model chosen, as either the corporate trustee or the council trustee model was at the clients¡¯ disposal, the customer, after weighing advantages and disadvantages of both models, finally selected the corporate trustee model.

The Formulation of Scheme Clauses

Main clauses of the scheme include the following topics: the composition of employees, the height of benefits/ risk, the proportion of contributions, if contributions are paid on a monthly or yearly basis, the age at which beneficiaries can collect benefits as well as the mode of withdrawal, the vesting schedule of benefits, how a process of dismissal is executed, how a conversion of a plan is processed and last but not least it includes the investment selection. Our sample enterprise, after the trustee had made a detailed calculation and analysis on the data provided, defined contribution rates and vesting proportions with taking wages as the contribution base. After all the clauses of the annuity scheme were defined, a standard written document was formed and submitted to the employee representative assembly for resolution and adoption.

Selecting Further Service Institutions

The enterprise entrusted Taiping Pension with the role of a trustee, taking charge of the selection of the three remaining management institutions. Based on preliminarily conducted assessment and screening on all institutions available on the market, Taiping Pension invited some of them to a bidding according to customers¡¯ demands and various actual requirements.

Through the ordinary process of inviting for bidding, Taiping selected two eligible institutions to offer their services in the so-called ¡°2+2 Model¡±. Mainly considering that the Chinese annuity market still is going through its start-up period, multiple institutions participating in the plan can cause problems in guraranteeing a smooth daily routine. As the saying goes ¡°too many cooks spoil the broth¡¯, opting for the ¡°2+2 model¡± may correspondingly simplify the process and improve efficiency.