Local government pension funds will be able to invest up to 30% of their net asset value into stocks, equity funds and balanced funds, according to a report in the state-run China Daily.
"The rules will be released soon as stated in our goal to roll out the plan in 2016, to make sure that the capital will be in place in time," said Li Zhong, spokesperson for the Ministry of Human Resources and Social Security, who was quoted in the report.
The potential capital inflows from pension funds are estimated at RMB 2 trillion ($314bn).
In August, the government announced that pension funds would be allowed to invest in higher return products such as stocks for the first time.
“The funds were previously parked in banks or invested in treasury bonds with low yields, provoking calls for change as the country faces increasing challenges in caring for its growing elderly population,” according to state news service Xinhua.
At the end of 2014, China's pension funds, which account for roughly 90% of the total social security fund pool, had net assets of 3.5 trillion yuan, Xinhua reported.