BEIJING, June 24 (Xinhua) -- China's insurance regulator announced on Monday that it will pilot a house-for-pension program in four major cities in the latest move to diversify the eldercare system.
The program supplements the current basic pension system and takes some pressure off the state budget from an increasing aged population.
The two-year pilot, effective on July 1, will allow people over 60 in Beijing, Guangzhou, Shanghai and Wuhan to deed their houses to an insurance company, which will give them cash payment every month, according to the China Insurance Regulatory Commission(CIRC).
The four cities have large numbers of senior citizens, mature insurance sectors and a healthy property market, the CIRC said.
CIRC official Yuan Xucheng said the scheme will improve the quality of elderly care.
Li Xinyu of the Center for Insurance and Social Security Research said the new business will complete the national social security network for senior citizens.
A researcher from Manulife-Sinochem reckons the program cannot meet the demands of China's aged.
Echoing his words, Meng Xiaosu, executive of Happy Life Insurance Co. and one of the advocates of the program, says the business only targets a limited range of people, not the entire generation. It will mainly serve the childless.
Jiao Wenchao, researcher at Ping An Securities, maintains that the eldercare system will still be centered on the basic national pension, complemented by commercial retirement schemes, but the system will be diversified and multi-layered.
China's cabinet, the State Council, decided in September to complete a social care network for people over 60 by 2020, including the reverse mortgage pilot. The number of people over 60 has reached 202 million in China, around 15 percent of the population.
Major Chinese cities including Beijing, Nanjing and Shanghai have been testing similar programs since 2003.
However, CIRC said the program has many issues including ownership, mortgages and interest rates, which need further exploration.
The real estate will be auctioned by the insurers after the death of the home owner, with any profit from the sale going to the relatives of the deceased.
This type of transaction is not without risk for the insurance house which will have to swallow any losses due to falling home prices.
The commission has not received any applications from insurance companies to join the pilot, but applications may come soon, Some insurers have been working on products since March. The government might give subsidies to insurance companies to push forward the pilot.
Other problems include China's 70-year leasehold for real estate, the grim property market outlook and the traditional belief that the houses should be inherited by children who, in return, take the responsibility of taking care of the aged.
The CIRC will consider a supervisory mechanism for the reverse mortgages, according to the result of the pilot, to clarify issues such as price and interest rate.