CHENGDU, Dec. 2 (NBD) -- By selecting four banks to provide custody services for its pension fund, China has made a prudent but significant step to tackle the increasing challenges of an aging population.

NBD reporter accknowledged that roughly four provincial governments would join the first wave of investment to entrust their pension funds with National Council for Social Security Fund (NCSSF), releasing 400 billion yuan (about 58.14 billion U.S. dollars) of funds for more diversified investment.

The custodians are Industrial and Commercial Bank of China , Bank of China , Bank of Communications and China Merchants Bank, according to NCSSF website.

The move is part of China's efforts to preserve and increase the value of its vast locally-managed pension funds, as there were more than 200 million people aged over 60 in China in 2015, accounting for over 16 percent of the total population. The number of people aged over 65 stands stood at 144 million.

In China, urban employees pay for their pension before retirement and usually get a pension equal to about half of their previous salary after retirement. 

However, around 90% money of the country's total social security fund pool was previously only deposited in banks or invested in treasury bonds, which has been strongly criticized due to rigid management and low returns.

Unlike local governments, the NCSSF is able to invest the pension funds in a variety of financial products, including bonds and equities.

The NCSSF's investment of all its social security funds produced a return of 15 percent in 2015, with an annual average return rate of 8.8 percent since its establishment.

A pilot scheme has already seen the provinces of Guangdong and Shandong entrust the NCSSF to manage 100 billion yuan of their pension funds, respectively.

From 2012 to 2015, the NCSSF achieved an average yield of around 7.9 percent for the investment of the pension funds from Guangdong, according to NCSSF data.

The loosening of investment rules on pension funds has been closely watched by capital markets, especially the stock market.

However, the government's priority remains the stable value increment of the pension funds with bold investments expected to be avoided. To minimize risks, the guidelines restrict the proportion of pension funds in stock-related investment to 30 percent.