Financing aging society becomes key priority

China is becoming a deeply aging society at an unprecedented pace. By the end of 2025, the country's population aged 60 and above had reached 323 million, accounting for 23 percent of the total population. It is projected that the elderly population will grow at an average annual rate of 3.6 percent during the 15th Five-Year Plan period (2026-30), while the 60-plus ratio will rise to 27.8 percent by 2030. The old-age dependency ratio is also expected to increase rapidly, surpassing 40 percent during the 15th Five-Year Plan period and reaching 46.1 percent by 2030. China defines the old-age dependency ratio as the number of individuals aged 65 or older per 100 people of working age — or those aged between 15 and 64.

As aging deepens, the traditional pension security model centered on basic pension insurance is increasingly proving inadequate. Developing pension finance — using financial tools to support retirement savings, eldercare industry financing and eldercare service systems — has become a key pillar of China's national strategy to actively address population aging.

China's current multi-tier pension insurance system consists of three pillars. The first is the basic pension insurance system. The second includes enterprise annuities for companies and occupational annuities for government agencies and public institutions. The third pillar consists of personal pensions and other commercial retirement financial products.

At present, the pension security system is heavily dominated by the first pillar, creating structural weaknesses. This not only places sustained pressure on public finance, but also makes it difficult to meet the increasingly diverse, full life-cycle needs of seniors. Eldercare is no longer limited to ensuring basic living standards, but now extends to savings accumulation, caregiving services, health management, wealth inheritance and emotional well-being.

Against this backdrop, the strategic role of pension finance has evolved from a supplementary tool for traditional social security into a national strategic pillar for addressing aging, improving the multi-tier protection system and supporting high-quality development of the silver economy.

In December 2024, China issued guidelines on financial support for eldercare development and the high-quality growth of the silver economy, proposing phased goals — including establishing a basic pension finance system by 2028.

In essence, the pension finance system is an institutional solution to population aging, with its strategic role reflected in three dimensions.

First, pension finance serves as a value enhancer for retirement wealth, introducing market-oriented investment and asset allocation mechanisms to preserve and increase the value of pension assets over the long term.

Second, pension finance provides payment support for eldercare services. Through products such as long-term care insurance, reverse mortgage pension insurance and pension trusts, pension finance converts financial assets into purchasing power for services.

Third, pension finance acts as a capital engine for the eldercare sector. Beyond supporting personal retirement savings, it channels long-term, stable and low-cost funding into eldercare facilities, age-friendly renovations, rehabilitation and nursing services, and smart eldercare technologies through instruments such as senior care sector loans, special purpose bonds, industry investment funds and eldercare real estate investment trusts.

Developing pension finance carries broad strategic significance. It is not only a passive response to aging, but also a proactive strategy for promoting high-quality economic growth, optimizing financial structures and improving public welfare. Its significance can be understood from four dimensions.

For seniors, pension finance helps smooth consumption across different stages of life and improves quality of life in old age. Pension finance offers diversified tools for inter-temporal resource allocation: basic pension insurance provides foundational protection, enterprise annuities offer supplementary benefits, while personal pensions and commercial retirement insurance create additional savings channels. This multi-tier framework allows individuals to build personalized retirement plans based on their income levels, risk preferences and retirement goals.

For the eldercare industry, pension finance injects long-term capital and helps resolve financing bottlenecks.

Traditionally, the eldercare sector has been characterized by large investment requirements, long payback periods and thin profit margins. As a result, senior care institutions, community care providers and age-friendly renovation companies have long faced difficulties in obtaining affordable financing.

However, the development of pension finance is beginning to change this situation. In 2025, the People's Bank of China — the country's central bank — launched a 500 billion yuan ($73.67 billion) re-lending facility for services consumption and eldercare. By end-2025, outstanding loans to the eldercare sector had reached 224.6 billion yuan, up 50.5 percent year-on-year.

The influx of financial capital has not only eased funding shortages, but also driven the development of the eldercare sector toward large-scale operations, chain-based models and brand-building. Leading companies have achieved cross-regional expansion, resulting in a gradual increase in industry concentration and significant improvements in service standardization and operational efficiency.

Developing pension finance means transforming vast household savings into long-term investment capital, which can then flow continuously into capital markets through professional institutional management. The introduction of long-term capital could help stabilize market volatility, promote value investing by favoring blue-chip stocks, and channel funds into the real economy through equity and infrastructure investments.

As the population continues to age, unless the current situation — where the first pillar dominates the eldercare security system — is addressed, the fiscal burden will become unsustainable. Developing pension finance and expanding the second and third pillars essentially shift retirement responsibility from being borne primarily by the State toward a more balanced sharing among the government, employers and individuals.

From the perspective of institutional resilience, a multi-pillar pension system also diversifies risks. Fluctuations in any single pillar are less likely to destabilize the entire system, improving its ability to withstand shocks.

Based on policy trends and market practices, the pension finance system is expected to exhibit five major trends over the next half decade.

The first trend is greater coordination among the three pension pillars, moving from fragmented operations toward institutional integration. During the 15th Five-Year Plan period, connecting the three pillars and enabling functional complementarity will become a key reform priority.

Possible measures include establishing a unified national pension information platform linking basic pension insurance, enterprise annuities, occupational annuities and personal pension accounts; allowing transfers between enterprise annuity accounts and personal pension accounts when employees change jobs; and exploring integration between individual accounts under the basic pension system and third-pillar accounts.

The second trend is the evolution of pension financial products from savings-oriented offerings toward full life-cycle asset allocation.

Currently, savings and insurance products dominate China's personal pension market. In the future, the supply of equity products, target-date funds and retirement wealth management products is expected to grow further. Financial institutions are also likely to accelerate product innovation and introduce integrated retirement financial solutions covering individuals aged 25 to 75.

The third trend is that eldercare sector finance will shift from policy-driven growth toward market-driven development.

In the past, financing for the eldercare sector relied heavily on policy re-lending tools and fiscal subsidies. During the 15th Five-Year Plan period, however, market-oriented financing instruments are expected to gain momentum as business models mature and leading companies emerge.

Industry merger and acquisition funds are expected to become more active. Eldercare REITs may also achieve breakthroughs. In September, the National Development and Reform Commission said that it would actively explore issuance pathways for REIT projects involving new asset classes — such as senior care facilities — for which there are currently no established issuance precedents. Together, these market-oriented instruments will establish a full-chain capital solution covering project incubation, asset operation and risk diversification.

The fourth trend is the transformation of financial services from product delivery toward ecosystem building.

Financial institutions are shifting from simple providers of pension products to integrated solution providers. Leading insurance companies are building, acquiring or partnering with eldercare communities and nursing institutions, integrating long-term insurance policies with residency rights and healthcare management services. Some banks are also collaborating with internet platforms to create cross-sector ecosystems that combine pension finance with domestic services, healthcare and tourism.

During the 15th Five-Year Plan period, five major trends — greater coordination among the three pillars; life-cycle oriented products; market-driven eldercare industry finance; nationwide long-term care insurance systems; and ecosystem-based financial services — are expected to accelerate. Only by deepening reforms and adapting to demographic realities can China build a modern pension finance system suited to a rapidly aging society, and turn the goal of "elderly people being properly cared for" into a reality.

The writer is a senior research fellow at the Star Atlas Institute of Finance. This article is an excerpt from the English translation of the original text published on financial information service provider Sina Finance on April 17.

The views do not necessarily reflect those of China Daily.