How do residents choose financial management?, Capital market volatility, banks welcome further interest rate cuts | Pension | Banks
Domestic banks are experiencing a wave of interest rate cuts for deposits, the growth rate of household savings deposits has reached a new decade high, new fund issuances have frequently encountered setbacks, and insurance premiums have fully rebounded... In the context of lower interest rates and broken expectations for rigid redemption of wealth management products, the traditional model of relying on risk-free product investment and finance is difficult to beat inflation, forcing the public to pay attention to asset allocation issues. In the era of low interest rates, how to manage one's own "money bag" is becoming a topic of concern for the people.
Recently, the author interviewed industry experts such as Rui Meng, a professor of finance and accounting at China Europe International Business School, Wang Rui, the product strategy leader of Ping An New Bank Insurance and North American actuary, and Luo Yuanshang from the University of Science and Technology, focusing on the reasons and trends of interest rate decline, the current situation of the wealth management market, asset allocation, and pension planning.
Rui Meng believes that the downward trend of interest rates will become the mainstream trend for a long time. With China entering an aging society, the importance and urgency of using different financial tools to scientifically allocate assets and reserve for elderly care are becoming increasingly prominent. Luo Yuanshang pointed out that the asset allocation of residential households can be compared to the different roles of football players. The forwards are equity funds, the defenders are bank wealth management, and the goalkeepers are insurance. The combination of high-yield funds that charge forward and fixed rate insurance that can lock in long-term returns results in lower risk and better effectiveness. Wang Rui introduced the bottom line role of insurance as the foundation of a wealth building, and emphasized that the reserve of pension funds must have four characteristics: sustainability, stability, liquidity, and inheritability.
Changes in wealth management, favored insurance products
Recently, six state-owned banks have taken the lead in lowering some deposit interest rates, and the adjusted five-year lump sum deposit and withdrawal interest rate is 2.5%. Subsequently, 12 joint-stock banks including China Merchants Bank and Shanghai Pudong Development Bank have also announced a reduction in their RMB deposit interest rates. Since the beginning of this year, domestic bank deposit interest rates have been adjusted multiple times. At this point, the fixed deposit interest rates of state-owned banks have fallen below 3% across the board, and a decrease in deposit interest rates is the trend.
Rui Meng believes that the reason why the central bank adopts a countercyclical monetary policy to lower interest rates and relax monetary policy is to stimulate corporate investment and household consumption, thereby driving economic recovery. Meanwhile, Rui Meng found through comparative research on OECD countries that with the disappearance of the demographic dividend, the risk-free interest rates in these countries have shown a downward trend, and even some have negative interest rates. Taking into account both the international and domestic macro environment, it is expected that the downward trend of interest rates in China will be a long-term phenomenon. When it comes to how residents manage their finances and achieve asset appreciation and preservation in the event of a decline in interest rates, Rui Meng pointed out that it needs to be based on which end of the balance sheet investors are on. "If investors keep their money in the bank, low interest rates will lead to a decrease in yields and a slowdown in wealth appreciation. If investors are financing borrowers, low interest rates are good news for them because borrowing costs are lower," Rui Meng analyzed.
Under the mainstream trend of declining interest rates, the pace of financial management and risk preferences of residents have also undergone a transformation. According to data from the central bank, as of the end of February 2023, the balance of savings deposits in China reached 127.32 trillion yuan, a year-on-year increase of 18.3%, and the growth rate reached a new high in nearly a decade. In addition to savings, residents need new asset allocation exports to meet the demand for wealth growth, and the question of "which baskets to put eggs in" questions every general investor.
Luo Yuanshang said, "In a low interest rate environment, the public lacks a sense of security and the savings rate is high, which is not difficult to understand. Moreover, bank wealth management is a form of floating income, and the public's expectations of bank wealth management's returns also decrease in the trend of market decline. Wealth management is actually anti human. According to common sense, when interest rates decline, the public should buy when they find that the stock market is cheaper, but the more they fall, the less they dare to buy. However, insurance is actually human oriented, which is reflected in the fact that insurance can lock in higher deterministic benefits for the public than bank deposits."
When conducting user account analysis, Luo Yuanshang shared the four accounts that each household needs to configure, namely the petty cash account, insurance account, value preservation account, and value-added account. According to its introduction, a basic living allowance of 3-6 months is generally placed in the reserve fund account as a cover; The insurance account is dedicated to providing protection for illness and accidents; The original hedging accounts, which were mainly focused on bank wealth management and bond funds, have gradually shifted their structure with the downward trend of interest rates, and the share of dividend based and increased lifetime insurance products has increased; The last value-added wallet is based on an individual's risk tolerance and allocates high-yield products such as equity funds as needed.
From this year's premium data, it can be seen that insurance products are indeed becoming one of the directions for diverting deposits. Data shows that the insurance industry's premium reached 2.3 trillion yuan in the first four months of this year, a year-on-year increase of 9.8%, with life insurance increasing by 11.8%, indicating a significant recovery in the industry. In response to this data performance, Liu Xinqi, a non bank analyst at Guotai Junan, stated in a research report that as deposit interest rates fall below 3%, residents' demand for insurance savings products with deterministic returns continues to be strong, and changes in product reservation rates will not change the scarcity of insurance yield certainty. Savings insurance will continue to drive the growth of new business value in life insurance.
Wang Rui, who has been deeply involved in the insurance industry for many years, shared his philosophy from the perspective of how insurance product design can meet customer needs. Wang Rui stated that customers generally have two demands for insurance products. The first is investment attributes, which require insurance products to have long-term and determined returns, especially in the context of declining deposit interest rates and increased fund volatility. The second is functional attributes, especially in the area of elderly care reserves, there is a strong demand for sustained lifelong and stable cash flow to ensure elderly living. Therefore, regardless of the long-term trend of interest rates, insurance, as an investment product, ensures zero correlation with the equity market and interest rate fluctuations by locking in interest rates, thereby isolating fluctuations and effectively helping customers reduce uncertainty. It is an important category in asset allocation. For customers who need to spend more money after retirement, the functional attributes of stable insurance payments are more prominent, which can effectively combat longevity risks, isolate market risks, maintain stability and high quality of life.
The quality of providing for the aged is guaranteed under the two-pronged approach of finance and service.
The large population size is a long-term characteristic of China's population, and the trend of aging population is becoming increasingly evident. As of the end of 2022, the population aged 60 and above in China accounted for 19.8% of the total population, of which 14.9% were aged 65 and above. China has entered a stage of moderate aging.
Under this trend, pension reserves have become a focal point of public concern. According to a notice issued by the Ministry of Human Resources and Social Security and the Ministry of Finance, starting from this year, the basic pension for retirees will increase by 3.8% by the end of 2022. From a policy perspective, in order to better play the role of the third pillar of elderly care, the government introduced a tax preferential policy for personal pension accounts last year, encouraging the public to reserve personal pension funds and also encouraging commercial institutions to participate through market-oriented operations.
"The so-called three pillars of elderly care are based on the country, enterprises, and ourselves, which is commercial elderly care. Currently, our proportion of commercial elderly care in the three pillars is not high, which is also the reason for the introduction of pension policies. Rui Meng analyzed that" the industries involved in the third pillar include not only commercial banks and public funds, but also insurance. Due to the characteristics of long term and interest rate locking, insurance has a natural advantage in the elderly care field. "In addition, Rui Meng added that in addition to financial reserves, elderly care also needs to be supported by services. Currently, insurance companies such as Taikang and Ping An also provide elderly care services, including elderly care apartments, while selling insurance products.".
When discussing pension planning, Luo Yuanshang pointed out that the variables that affect the final income of pension reserves are nothing more than principal, rate of return, and time. "The final return is equal to the principal multiplied by 1, plus the yield i, and time is the Nth power, which can have a compound interest effect. Therefore, when making financial planning, everyone should start from their own perspective and see which of the three variables can determine which one to focus on." Luo Yuanshang explained in detail, "For young people, small money can be turned into big money through the compound interest of time. For those who want to plan their retirement life, fixed income products can also resist the risk of downward interest rates, which is a good tool."
How to solve this pension finance formula in a low interest rate environment? It needs to be driven by the three carriages of insurance, bank wealth management, and funds. Luo Yuanshang believes that "insurance is like a 'big white horse', which can bring the most sense of security and certainty to the public; bank wealth management is like a 'sweaty BMW', which will create small surprises for investors with market interest rate fluctuations; funds are like a 'dark horse', but the prerequisite is to know how to tame them. Only by mastering the 'three carriages' well can we have a more stable and high-quality elderly care life.".
In addition to financial reserves, new models of healthcare and even community elderly care have also been sought after in recent years, and high-quality, full cycle, and multi-level elderly care services will become a necessity. In recent years, financial institutions including Taikang and Ping An are gradually integrating financial services with medical and elderly care services.
Taking Ping An as an example, according to Wang Rui, Ping An divides its pension related business into two major areas: pension asset reserves and pension life services. The former, relying on its own comprehensive financial services, Ping An provides a package of product solutions including increased lifetime, elderly care insurance, and fund trusts, focusing on providing customers with pension financial reserve services and helping them manage their "pension money bags". The latter, based on in-depth research on customers at different stages of aging, Ping An has created two full cycle elderly care solutions: home-based elderly care and high-quality health care community Zhenyi Year. "In addition, we have also connected a series of service systems such as health management and telemedicine, which not only manage the elderly care fund, but also form a complete set of solutions for customers' clothing, food, housing, and transportation."
"In fact, the management of elderly assets and elderly living services are interconnected. For example, our pension insurance products can provide customers with stable cash flow every month, and this money can be connected to the health and wellness community in a one-stop manner for life. This not only solves customers' asset problems, but also meets their needs in various aspects such as life and services," said Wang Rui.
It is understood that Ping An has formed a complete elderly care service system consisting of "insurance+health management", "insurance+home-based elderly care", and "insurance+quality health care" through comprehensive finance, medical and health ecology, and digital technology.
In terms of home-based elderly care, China Ping An meets the service needs of the elderly in various aspects such as medical, food, housing, transportation, finance, health, wellness, entertainment, care, and safety through the model of "three in one elderly care butler, 10 major service scenarios, and 1 set of supervision system". Among them, the "three in one elderly care butler" includes intelligent butler, life butler, and doctor butler. As of now, Ping An Home Care has launched ten major scenarios and over 500 services, covering 47 cities. More than 10000 experience officers have started home care service experiences, and over 40000 customers have obtained home care benefits.
In terms of high-quality health and wellness, China Ping An officially launched the high-quality health and wellness brand "Ping An Zhen Yi Nian" in 2021. Based on the innovative seven dimensional health concept, Ping An Zhenyi New Year takes the city center as its location, connects rich and rare medical resources and care services at home and abroad, and constructs a "three respects" value system of noble life, privileged services, and dignified care. It is understood that the project has been implemented in first tier cities such as Shekou in Shenzhen, Baiyetan in Guangzhou, and Jing'an in Shanghai. In the future, the "Yinian City" community will also be gradually laid out in Beijing, Hangzhou, and other places. In addition, Ping An China has also launched the "Yixiang City" product line for new first tier cities based on the characteristics and needs of different cities, and has settled in Foshan, Guangdong.
Against the expectation of long-term interest rate declines and the macro background of an aging population, residents will face new demands and challenges in wealth management and asset allocation. As suggested by Rui Meng, residents need to consider their financial situation and life stages in advance when conducting wealth management, and entrust professional matters to professionals. Based on their own risk preferences and needs, they can reasonably allocate assets to achieve wealth preservation and appreciation.
