China needs to speed up innovation of financial products provided under its private pension program to meet multilayered and diversified retirement planning needs of its rapidly aging population, industry experts said.

The country recently announced the launch of its private pension program in 36 pioneering cities and areas, including Beijing, Tianjin and Shanghai.

Many of the 23 commercial lenders and 11 wealth management companies that received a regulatory nod to participate in the program, including China Construction Bank and China CITIC Bank, officially started offering private pension services on Friday.

Some insurance companies such as PICC Life Insurance Co and Guomin Pension & Insurance Co sold their first private pension products on the same day.

"In the next step, China should give full play to the advantages of its banking and insurance sectors as well as capital markets, strengthen industry coordination and resource integration, and build a cross-cyclical, long-term and diversified model of asset allocation. Qualified financial institutions must further develop special products through innovation to meet the needs of retirement planning," said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co.

Workers who participate in basic pension insurance for urban employees or the basic pension insurance for urban and rural residents, can take part in China's private pension program.

Individuals can make voluntary contributions by setting up a personal pension account and can enjoy tax benefits. Yearly contributions are capped at 12,000 yuan ($1,680).

After setting up an account, participants can use their pension contributions to purchase financial products that meet regulatory requirements from eligible financial institutions. The products include commercial banks' wealth management products, deposits, commercial pension insurance and public funds. Participants will bear investment risks on their own.

To encourage more people to participate in the program, the government could consider appropriately adjusting the limit on yearly contributions to personal pension accounts and offer stronger tax incentives, Dong said.

Improving investment returns is the key to the development of the private pension market whose long-term growth depends on the design of such financial products, said Zheng Bingwen, director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences.

The return on investment on a risk-adjusted basis is a critical factor in the sustainability of the overall pension system. People's motivation to participate in the private pension program will be significantly reduced without an appropriate level of expected returns, said Andreas Wimmer, member of the board of management of Allianz SE, at the Annual Conference of Financial Street Forum 2022 last week.

Huang Tao, general manager of Guomin Pension & Insurance Co, urged regulators to make breakthroughs in regulations on the use of pensions so that financial institutions can make better liquidity arrangements, thus improving returns on investment, reducing the cost of investments and increasing investment efficiency.

The size of China's private pension market may reach 3.5 trillion yuan in 10 years, said Fan Hua, head of BlackRock CCB Wealth Management.

"We expect to see relatively steady development of China's private pension market, which will hopefully seize a window of opportunities for long-term rapid growth," Fan said at the forum.