Specialized commercial pension plans with recent settlement rates exceeding 4% have attracted investor attention. In the current environment of declining interest rates, it is difficult to find products offering yields above 3%, and stable products yielding over 4% are exceptionally rare.
However, a 4% settlement rate does not equate to the final return received. These plans are not pure investment products; they are pension annuity insurance products managed through an account-based system. After premium payments begin, funds enter an account for accumulation and growth. As long as the withdrawal date has not been reached, the account continues to accumulate returns, with the option to make additional premium payments irregularly. Generally, withdrawals are only permitted after retirement or reaching age 60. Early withdrawals often result in a loss of account earnings and potentially even a portion of the premiums paid.
The account operates in two phases: the "accumulation period" and the "distribution period." Before withdrawals begin, during the accumulation period, the settlement rate announced by the insurance company reflects the return on the investment portfolio. Therefore, the 4% rate is indeed real, representing the earnings credited to the account for that specific year based on that rate, forming part of the account's long-term, overall return.
However, during the accumulation period, these plans operate on a "guaranteed interest rate + floating rate" model. Only the guaranteed rate is assured by the insurance company; any amount above this is variable and uncertain. The final settlement rate is determined by the insurer's actual investment performance. This means that a 4% settlement rate last year does not guarantee the same rate this year.
How are these pension plan accounts invested? Insurance companies typically offer two portfolio options: a conservative portfolio and an aggressive portfolio. Policyholders can allocate funds to both, choose one, or switch portfolios mid-term. The conservative portfolio primarily invests in fixed-income assets, with some allocation to equities and liquid assets. The aggressive portfolio may have a higher allocation to equities, adopting a more assertive strategy. The guaranteed rate for the aggressive portfolio is usually significantly lower than for the conservative option.
For most specialized commercial pension plans, the aggressive portfolio's settlement rate is slightly higher than the conservative portfolio's, but this is not always the case. For example, the aggressive portfolio of Xinhua Pension's Yingjia Life plan had a settlement rate of only 3.6%, lower than the conservative portfolio's 4.00% rate for 2025. Similarly, Taikang's Fuxiang Baisui plan's aggressive portfolio had a 2025 settlement rate of 2.5%, below the conservative portfolio's 3%.
How can yields around 4% be achieved in a declining interest rate environment? Based on comprehensive understanding, the equity market showed promising opportunities in 2025, and relevant product accounts may have allocated funds to stocks and funds. National Pension previously stated that its specialized commercial pension products use fixed income as a foundation, supplemented by equities and alternative investments to enhance flexibility and boost returns, aiming to achieve stable absolute returns for clients.
Which plans had relatively high settlement rates last year? According to available information, Agricultural Bank of China Life's Baisui Life Plan A and B had relatively high rates. Their conservative portfolios both offered a 4.35% settlement rate, while the aggressive portfolios offered 4.55%. However, the guaranteed rates were not particularly high: 1.5% for the conservative portfolio and 0.75% for the aggressive portfolio.
Currently, most products on the market offer a guaranteed rate of 1.5% or 1.75% for their conservative portfolios. A few products guarantee 2%, such as CITIC Prudential's "Anxiang Fengnian" plan, whose conservative portfolio guarantees 2%. However, this product's settlement rates for 2025 and 2024 were only 3.2%.
If screening available products based on guaranteed rates and last year's settlement rates, the conservative portfolio of Xinhua Pension's Yingjia Life Plan C offers neither a low guaranteed rate nor a low settlement rate. It guarantees 1.75% and settled at 4%. Notably, its conservative portfolio's settlement rate was higher than its aggressive portfolio's rate.
National Pension also has two products with last year's settlement rates exceeding 4%. Their conservative and aggressive portfolios settled at 4.01% and 4.02%, respectively, but the guaranteed rates were not high: 1.5% and 0%.
Nevertheless, whether these products can maintain high yields remains uncertain. In recent years, as interest rates have declined, the guaranteed rates for these pension plans have also decreased, and settlement rates have followed a downward trend.
What is the actual return an investor can ultimately receive? These products are designed to encourage long-term holding. Policies typically stipulate that surrendering the policy within the first 5 years returns less than the total premiums paid. Surrendering between years 6 and 10 returns all premiums paid, but only up to 75% of the accumulated earnings. Even after 10 years, a maximum of 90% of the accumulated earnings may be received. The structure encourages withdrawals at retirement or after age 60 and discourages early surrender.
At the start of the distribution period, the insurance company calculates the monthly or annual payout based on the total value accumulated in the account on the withdrawal start date, using an annuity conversion table. Policyholders may sometimes have the option to lock in the current conversion table or use the table effective on the withdrawal date. Currently, most products stipulate using the table effective on the withdrawal date. Specific terms vary by product.
Withdrawal options include lifetime annuitization or fixed-period payouts. Lifetime payments might start lower but increase over time. Fixed-period payouts, such as over 10 years, would provide higher initial payments.
To illustrate, consider a case: A 40-year-old male makes a single premium payment of 100,000 CNY on his 40th birthday, planning to start withdrawals at age 60—a 20-year accumulation period. Assuming the account grows at a compound annual rate of 3%, the account value at age 60 would be approximately 180,600 CNY.
The insurer would then use a conversion table to calculate the monthly payout. Using a sample table, the monthly payout starting at age 60 might be around 748.59 CNY, potentially increasing to over 1,000 CNY by age 70. Total payments received by age 80 could reach 246,300 CNY, with payouts increasing with longevity.
Alternatively, opting for a fixed 10-year payout period might yield a monthly payment of around 1,600 CNY, totaling approximately 200,800 CNY.
Few products now allow locking in the conversion table at purchase; most use the table effective on the withdrawal date, introducing uncertainty into the final payout amount. Insurers base these tables on factors like prevailing interest rates and life expectancy. Using different tables can result in different payout amounts and an internal rate of return that may be lower than the historical settlement rate.
For those preferring a lump-sum withdrawal instead of periodic payments, this is generally only possible if the plan is purchased through a personal pension account. The annual contribution limit for such accounts is currently 12,000 CNY, which also offers tax benefits.
From a longevity risk perspective, choosing lifetime annuitization provides more security. Those concerned about shorter life expectancy might opt for a shorter payout period. In the event of death during the contract term, the insurer pays a death benefit, typically at least the remaining account value after any payments made.
In summary, specialized commercial pension plans are suitable as a supplement to retirement planning and should not be viewed simply as investment products. Their primary focus is retirement security. While a 4% settlement rate appears attractive, the only guaranteed return is the modest guaranteed rate. Future settlement rates are uncertain, and the final internal rate of return also depends on the annuity conversion table, potentially resulting in a return lower than the published settlement rates.