The guidelines China's regulators announced this month for private "third-pillar" retirement plans could provide a boost in fostering long-term investment habits in a mainland market better known for its punters.
The China Securities Regulatory Commission guidelines, released March 1, require savers to accept minimum holding periods of one, three or five years for the target-date and target-risk fund-of-funds offerings set to become the backbone of a new class of individual retirement accounts.
The guidelines urge managers of those products to offer lower fees for longer lockup periods, while allowing higher ceilings for allocations to equities and other risk assets for products with longer holding periods.
The CSRC announcement said a fund of funds under the third-pillar system will be able to invest up to 30% in risk assets for a strategy with a one-year lockup, 60% for three years and 80% for five years.
Those individual retirement plans are expected to complement the national and provincial public pension funds that make up the first pillar of China's retirement safety net and the second pillar enterprise annuities that big corporations offer to their employees.
Executives with money management firms welcomed that regulatory push to encourage investors to think long term, even as they acknowledged lockup periods could prove difficult for many mainland savers to embrace.
Regulations that encourage long-term savings and investments are key to building strong retirement systems, but lockup provisions could prove less effective in that regard than steps such as automatic enrollment or automatic escalation, said Wina Appleton, Hong Kong-based Asia-Pacific retirement strategist with J.P. Morgan Asset Management, in an email.
Minimum holding periods could discourage individuals from contributing to those savings plans or raise the odds of withdrawing assets when the lockup period ends, she said.
The lockups, if somewhat "crude," make it clear China's regulators recognize the "key issue is that the mindset of investors is too focused on the short term," said an executive with one Shanghai-based money manager working now to develop fund-of-funds strategies for the program, who declined to be named.
A number of investors will resist losing access to their money, said the executive, predicting that the five-year lockup option will prove to be "a step too far." Three years is probably "the best we can get," he said.