Visitors pass through the consultation hall at the National Pension Service's Seoul Northern Regional Headquarters. [Yonhap]
Visitors pass through the consultation hall at the National Pension Service's Seoul Northern Regional Headquarters. [Yonhap]

The National Pension Service posted investment returns of more than 208 trillion won ($138 billion) this year and claimed a record seven titles in rankings by global investment media — yet a new report warns that researchers responsible for long-term investment strategy, asset allocation and risk management are being inadequately compensated.

The report argues that insufficient pay is driving a steady exodus of research talent, and that the NPS should overhaul its bonus structure for the Fund Policy Analysis Division along lines similar to those used for its fund management arm in order to improve long-term returns.

According to a commissioned report by the National Pension Research Institute titled "Improvement Plan for the Performance Compensation System of the Fund Policy Analysis Division," the division comprises 14 researchers — 10 with doctorates and four with master's degrees — but as of March 2024, only three had been with the organization for five years or more. The average tenure stands at just four years and four months.

The high turnover is widely attributed to poor compensation. The report found that base salaries for research staff are roughly 1.2 to 1.5 times lower than those of fund management staff, and the gap in bonuses is even wider. In 2021, the average bonus for research staff was 17.51 million won, compared with 70.73 million won for fund management staff — a roughly fourfold difference.

The modest pay stands in contrast to the division's significant responsibilities. Its work spans medium-term asset allocation, target excess return setting, fund performance evaluation, risk management and investment policy research — all of which directly affect the NPS's long-term performance. "To align researchers' interests with the NPS's long-term returns, a bonus system based on long-term investment performance is essential," said Nam Jae-woo, a senior research fellow at the Korea Capital Market Institute.

Nam proposed separating the Fund Policy Analysis Division's bonus structure from that of general research staff and restructuring it along lines similar to those of the fund management division.

The plan calls for introducing a target bonus that reflects the NPS's five-year cumulative investment performance and risk-adjusted returns, measured by the Sharpe ratio, with a longer-term expansion to include organizational performance bonuses and long-tenure bonuses. The aim is to use long-term investment performance — rather than short-term results — as the evaluation benchmark, aligning researchers' incentives with the goal of improving the NPS's long-term returns.

The proposal is not new. The Board of Audit and Inspection flagged the issue in 2016, finding it unreasonable that general-track staff in the fund management division performing the same work received lower bonuses solely because of their job classification. The system was subsequently revised to allow general-track staff to receive investment performance bonuses as well. Nam argued that the same principle should apply to the Fund Policy Analysis Division, given that it participates in fund performance evaluation and the calculation of bonus payout rates.

Major pension funds abroad are also moving to strengthen their strategic research functions. Japan's Government Pension Investment Fund, the California Public Employees' Retirement System and the Canada Pension Plan Investment Board all operate dedicated research units focused on investment strategy and asset allocation to support long-term investment capabilities.

Meanwhile, the NPS recorded investment returns of 208.6 trillion won and a return rate of 14.18 percent as of the end of April, earning a record seven titles in global investment media rankings.

The strong performance is also expected to significantly delay the fund's projected depletion. In a recently released report titled "Revised National Pension Fiscal Outlook Based on Improved Fund Management Performance," the National Assembly Budget Office projected that the fund would swing to a deficit in 2050 and be fully depleted by 2069 — pushing back the deficit date by two years and the depletion date by four years, reflecting the growth in reserves through 2025.


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