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The Actuary The magazine of the Institute & Faculty of Actuaries

Around the world in 80 minutes

On 20 February 2004, the Pacific Rim Actuaries’ Club of Toronto hosted a unique event where actuaries from three continents celebrated the Chinese New Year of the Monkey. Chris Daykin, the UK government actuary came to Canada to speak on the ageing society of China and the role of the actuarial profession.
Chris also spoke about the potential role for actuaries, as well as more generally about the development of the actuarial profession in China. To promote actuarial education, Chris has travelled extensively internationally, mainly in Europe and China. He has been closely involved with establishing the actuarial profession in China since 1992 and visits China regularly to support those university actuarial programmes which focus on the Institute of Actuaries’ examinations. In 1998, Chris was named an honorary visiting professor at the Shanghai University of Finance and Economics.
The Pacific Rim Actuaries’ Club of Toronto is one of two actuarial clubs in Toronto. It was formed in 1993 as a forum for actuaries in the greater Toronto area to share thoughts and ideas on business and financial issues related to the Asia-Pacific region. Over the years, its audience has grown to include other related professionals and we have also expanded the ‘Pacific Rim’ to include India and Australia. The club currently has over 150 active members, representing the major insurance and reinsurance companies and consulting firms around Toronto. Catherine Lyn, the president of the club, worked with Watson Wyatt in England a number of years ago and knows Chris Daykin. Catherine invited Chris to speak to the club about China. Coincidently, Chris had planned to visit Mexico and New York shortly after the Chinese new year. He included Toronto on his itinerary and gave a very informative and interesting presentation on pensions in China.
Chris’s presentation began with a profile of the demographics in China. Currently, only 10% of the population is over 60. By 2050, that group is projected to increase to 26%, owing partly to the ‘one-child’ policy and to substantial improvements in life expectancy. Currently, there are nine working-age people (aged 15 to 64) for every one retirement-age person (aged 65 or older). By 2050, that ratio is projected to decrease to 2.5. The average age in China is currently 31. By 2050, the average age is projected to increase to 40. China is growing old before it can get rich.
We heard that in the early stages of pension development, pension coverage in China was restricted mainly to civil servants and workers in state-owned enterprises (SOEs).
Problems arose because many SOEs were financially weak, contribution compliance was poor, the schemes were run on a pay-as-you-go basis (consequently they began to collapse as the number of retirees increased) and there was very limited portability.
In the 1990s, the World Bank did some studies and concluded that with the rapidly ageing population in China, pension plans can no longer rely on the next generation of workers to support the current pensioners. Therefore, current employers and employees must pay in advance toward the cost of their pensions.
More recently, China’s Ministry of Labour and Social Security (MOLSS) introduced a two-part basic pension plan consisting of a flat pension (20% of wages) plus a notional defined contribution plan. Owing to a lack of fully qualified actuaries, this scheme is also running into funding problems as no proper actuarial evaluations of future costs have been made.
With the ageing of China’s population, occupational pension plans must now comply with the new MOLSS regulations, which require prefunding. MOLSS has recommended that pension funds be allowed to invest in stocks to provide for higher long-term rates of return. Accordingly, the challenges are to operate plans that are properly funded and to sort out annuitisation issues and the proper management of investments. There is currently an urgent need in China for experts in pensions to work and train locally.
Today almost all actuaries in China work in insurance. As the growth of pension plans takes place, that is likely to change, and the need for pensions actuaries will increase quickly. There is also a growing demand for actuaries in property-casualty insurance. The Institute of Actuaries and the Society of Actuaries both organise actuarial examinations in China. Several universities in China now offer actuarial courses. With the number of actuaries growing in China, the Society of Actuaries of China was founded in July 2001.
For the annual Chinese new year dinner, held at the Metropolitan Hotel in Toronto, the Pacific Rim Actuaries’ Club of Toronto received tremendous support from the actuarial community with 24 corporate sponsors (including the Society of Actuaries International Section) who donated cash and door prizes. There was a record crowd of 145 members in attendance for this gala ten-course banquet meeting.
The club holds three regular annual events, two of which are dinner meetings featuring an international topic connected with the Asia-Pacific region. The other regular event is a summer barbeque. This year the club will be introducing a programme of leadership and business seminars. More information about the club and future events can be obtained from its website at www.pacificrimactuaries.com.