China will take its first steps early in 2015 towards opening up a pensions market, as its regulators consult western insurers on tax incentives for long-term saving.

Standard Life, which three months ago signed a memorandum of understanding with Industrial and Commercial Bank of China the world's biggest bank, has been invited to the consultation and intends to be in on the ground floor as the market develops.

The current retiring generation in the vast country has to live on a state pension of around $200 (£127) a month, when typical annual salaries are $16000 to $20000.

The Chinese government last year issued a 10-point plan for creating the new market by incentivising savers, who typically save a huge 40 per cent of their income but all in deposit products from banks, usually on fixed terms of one to three years with rate guarantees.

It is considering introducing tax-free allowances for certain amounts of monthly saving into a pension-type product, and tax incentives for companies to provide workplace pensions. Once a model is chosen, it is likely to be piloted in one area such as the Shanghai free trade zone.

Standard Life is among around 25 insurers currently eyeing the market but it has one of the strongest positions - though challenges include the lack of sophistication of Chinese consumers and thus the potential for mis-selling and fraud, and the uncertainty of regulation which has in one case been retroactive, forcing players out of the market.

A Standard Life source commented: "Every month in Asia one million people reach the age of 60. The macro-economics in China potentially create a huge pie that if you even get a tiny slice of it could be exceptionally valuable. It should provide opportunities for us to take what we are strong at in the UK and either influence the market or help the joint venture prepare itself."

The Memorandum of Understanding was a significant event for a Chinese company, and was signed by chairman Sir Gerry Grimstone and operations chief Sandy Begbie in a four-hour Shanghai ceremony with the president of the world's biggest bank and eight top executives.

Standard has said it intends to work with ICBC on "developing broader co-operation in the areas of savings and investment solutions", to promote knowledge sharing through regular senior executive interaction, and to identify opportunities of mutual benefit in China, Hong Kong and the UK.

It is 15 years since Standard opened an office in Hong Kong and 11 since it created the Heng An 50-50 joint venture with TEDA (Tianjin Economic-Technological Development Area). It now has over 1250 employees and around 3200 financial consultants, operating from 10 branches and 29 city-level sales offices with around 200,000 customers.

But progress slowed in 2011 after a deal to sell a stake to Bank of China fell through, souring relations with its main banking partner ICBC.

In June 2012, with the Chinese business faltering, Standard set up an Asia Advisory Board led by Sir Gerry, to support all its ventures including Standard Life Investments' Asia and emerging markets business and HDFC Life in India.

Last year saw management changes and more reorganisation, to create a Hong Kong hub of key shared functions, in order to be closer to branches and customers in the region including China and Dubai. But last year following regulatory surprises the Dubai office was closed. In the first half of the financial year, the emerging markets division made a £6m operating profit, driven largely by India, where Standard has a 26 per cent stake in the leading life insurance brand as well as 40 per cent of the leading mutual funds business.

While analysts are beginning to see glimmers of value in India, they see China as being around five years behind it. Nevertheless, Standard appears to be well placed to benefit from the changes now in train. It has exited from single-premium lump sum products to concentrate on regular premium versions with higher margins and better customer retention, and has been unaffected by China's latest solvency regime which has required many rivals to inject more capital. Standard is also developing distribution links with two other major banks, and is contributing new expertise to the joint venture in the form of actuarial support for the first time.

The partnership includes action in the UK to support ICBC, which this year became the first Chinese bank in 80 years to receive a UK banking licence. The Standard source said: "We are looking at how we can use our presence in the UK to help ICBC get established here, and at the opportunities for us to do business with their retail customers coming into the UK."

Standard Life Investments, which is already seeing increasing amounts of business coming from mainland China into its Hong Kong office, will also be hoping to benefit from the developing pensions market.