Several banks in Hunan province have recently suspended a financial product called “Retirement Loan,” which was introduced just this May. According to staff at the Hunan Urban and Rural Residents Social Pension Insurance Management Service Center, the “Retirement Loan” is not a social security policy, but rather a financial product launched by banks, classified as a financial activity.
On July 10, the Hunan Province Agricultural Cooperative Union issued a notice requiring local agricultural cooperatives and rural commercial banks to temporarily halt the “Retirement Loan” business and promptly remove related product promotions and videos from circulation. The notice stated that contracts signed before July 9 are not affected by the suspension.
This information was confirmed by other sources including the Caijing Social and Caixin websites. Business personnel from several rural commercial banks in Hunan province informed Caixin on July 11 that they had received a notice from the Hunan Rural Credit Cooperative Union stating that the product is no longer available for processing, and related promotional materials have been taken down. Previously processed businesses, however, remain unaffected.
The Beijing Business Daily cited staff from the Hunan Urban and Rural Residents Social Pension Insurance Management Service Center who explained that the “Retirement Loan” is not a social security policy but a financial product introduced by banks, representing a separate avenue from social security payments.
Reported by the International Financial News, around 40 rural commercial banks in Hunan province had announced the launch of the “Retirement Loan” business. For example, the Linli Rural Commercial Bank stated in early June that they had disbursed over 30 million RMB in “Retirement Loan” funds.
The “Retirement Loan” was introduced in May this year. The Xiangyin Rural Commercial Bank in Hunan promoted it as a special loan product specifically designed to supplement the payment of pension insurance contributions, with funds directly deposited into individual social security accounts.
The Yuanjiang Rural Commercial Bank stated that the “Retirement Loan” is primarily aimed at addressing issues such as interrupted payments, lump-sum payments, or insufficient funds for urban and rural residents’ pension insurance contributions.
Applicants for the “Retirement Loan” are generally required to have local household registration and social security contributions, be between 59 to 65 years old, with a maximum loan term of 15 years, not exceeding 75 years in total (age + loan term). The loan amount is mostly limited to 90,000 RMB, with interest rates ranging from 3.1% to 3.6%. After retirement, individuals can repay the loan principal and interest in installments with their monthly pension. However, the Hunan Daily reported that starting from May 20 this year, the interest rate for first-home mortgages in Changsha had already dropped to 3.05%, indicating that the interest on the “Retirement Loan” is higher than that of a first-home mortgage.
According to calculations by the Daily Economic News, based on an annual payment of 6,000 RMB and a total payment of 15 years, a maximum loan amount of 90,000 RMB would allow for receiving a monthly pension of 808.48 RMB. After repaying the bank principal and interest, an additional 182.62 RMB would remain each month, resulting in 21.62 RMB more than without the lump-sum payment. Once the loan term ends, all pension benefits will be the responsibility of the insured.
If the borrower passes away during the loan period, it is generally not required for their children to repay the loan. A customer manager from a rural commercial bank told the Beijing Business Daily that in case of an accident involving the borrower, any remaining funds will be used to repay the loan and are not the responsibility of the borrower’s children. The Xiangyin, Huarong, and Yuanjiang Rural Commercial Banks asserted that if the borrower dies during the loan term, the remaining balance in the individual pension account will be used to repay the loan, and the children will not need to assume the debt.
According to a report from the 21st Century Business Herald on July 11, the feasibility of the “Retirement Loan” lies in its interest rate being lower than the return rate on pension contributions. Calculations showed that for a lump-sum payment of 90,000 RMB and a 15-year withdrawal period, the static calculated annualized return rate on the pension is approximately 3.84%. However, most of the higher return provided by the national social security system is directed towards the banks in the form of “Retirement Loan” interest, leaving only a small portion for the insured individuals, resulting in an actual loss of social security benefits.
Upon its launch, some industry insiders have expressed caution regarding the “Retirement Loan” product. Caixin reported that there are disputes regarding the compliance of loan fund usage and uncertainties about its commercial logic.
Wang Deyue, a lawyer from the Beijing Truth Law Firm, stated to the Beijing Business Daily that potential risks associated with the “Retirement Loan” should be considered. These risks include characteristics of the borrower group, as the product mainly targets those approaching retirement age, creating potential pressure on the borrower’s children if the loan is not fully repaid upon the borrower’s death. Additionally, the product’s limited applicability, currently only addressing the issue of insufficient payment periods, may not benefit elderly individuals with unstable income sources. Furthermore, with loan terms extending up to 10-15 years, the risk of bad debt may arise if the insured individual passes away, resulting in interruptions in repayments. Lastly, pension benefits are subject to significant policy adjustments, and if future pension policies change, it could disrupt the balance between repayment and returns.
The majority of online commentators have shared negative views on the “Retirement Loan.”
User “Derrick” expressed, “After harvesting from the young, now they are starting to harvest from the elderly, a merciless way of exploiting.”
“Let Me Not Speak” remarked, “It’s obvious that the banks are trying to tap into the retirement funds, only profiting and never losing.”
Another user calculated the potential costs, stating, “Borrow 90,000, pay 1,500 in interest each year, in 15 years it will amount to 22,500. The banks will still gain without losses, and you would only earn an additional 6 yuan per month instead of not taking the loan. You’d have to live past 75 years to make a profit. The issue is that currently the average life expectancy for men is only 67.7 years and for women, it’s 79 years.”
User “Dive and Fish” inquired, “Find a similar product from any country in the world.”