Kospi and Kosdaq figures are displayed at the dealing room of Hana Bank's headquarters in Seoul on Wednesday. The Kospi opened higher, recovering from Tuesday's sharp drop, and was up 104.69 points, or 1.74 percent, at 6,128.35 as of 9:01 a.m. [Yonhap]
Kospi and Kosdaq figures are displayed at the dealing room of Hana Bank's headquarters in Seoul on Wednesday. The Kospi opened higher, recovering from Tuesday's sharp drop, and was up 104.69 points, or 1.74 percent, at 6,128.35 as of 9:01 a.m. [Yonhap]

As the government pushes to amend legislation this year to introduce a fund-type retirement pension system, attention is growing over whether retirement pensions could become a new class of long-term domestic investors. The proposed fund-type model — which would pool contributions from multiple workplaces and manage them professionally, much like the national pension — has raised hopes that the hundreds of trillions of won in retirement accounts could provide a stable demand base for the stock market while improving long-term returns.

At the same time, mounting volatility in domestic markets has deepened concerns about entrusting retirement savings to equities and other risky assets.

According to the Ministry of Employment and Labor and the financial investment industry on Wednesday, the government plans to amend the Act on the Guarantee of Workers' Retirement Benefits this year to lay the legal groundwork for the fund-type retirement pension. The core of the reform is a shift away from the current contract-based system — in which individual workplaces sign separate agreements with financial institutions — toward a model where contributions from multiple workplaces are pooled into a single fund and managed by a professional investment organization through long-term, diversified strategies.

The push for a fund-type system is rooted in the persistently low returns of existing retirement pensions.

Total retirement pension reserves stood at 496.8 trillion won ($339 billion) at the end of last year, yet investment performance has fallen short of expectations. Over the past five years, the average return on principal-guaranteed products under defined-benefit plans hovered at 2 to 3 percent, while defined-contribution plans — where subscribers manage their own investments — posted average returns of 3 to 7 percent on non-principal-guaranteed products, with wide variation depending on individual risk appetite. Particularly concerning is the heavy concentration in safe assets: 85.4 percent of default-option reserves are parked in principal-guaranteed products, making it difficult to expect returns that outpace inflation over the long term.

The government aims to address these structural shortcomings through the fund-type model, which would consolidate assets from multiple workplaces into a single fund managed by professional investment institutions through long-term, diversified strategies.

A recent report by the Korea Capital Market Institute titled "Key Considerations in Designing a Fund-Type Retirement Pension System" found that under a structure where subscribers search for and select their own products, "choice avoidance" behavior tends to drive concentration in principal-guaranteed products — a bias the fund-type model could help correct. Markets have also expressed hope that the 553.88 trillion won in retirement pension assets as of the end of the second quarter could become another major institutional player in domestic equities, much like the national pension fund.

However, sharp swings in domestic stock markets in recent weeks have fueled fears that pooling retirement savings into a fund could erode the very nest eggs workers depend on. The ETF market shrank by around 90 trillion won in roughly a month amid the recent correction. Some subscribers to contract-type retirement pensions who invested in semiconductor ETFs and similar products have already recorded double-digit losses, depending on when they entered the market.

A petition filed with the National Assembly opposing the fund-type retirement pension argued that "concentrating retirement pension management into a single fund raises the risk of political and policy interference, and a single misjudgment could directly harm the retirement livelihoods of countless citizens." The petitioner added, "People in their 20s and 30s are already worried they may not receive their national pension — the government should not reach into their retirement pensions as well."

The Ministry of Employment and Labor, which is driving the fund-type reform, said that even after legislation is enacted, enrollment in the fund-type system would remain entirely voluntary for both workplaces and individual subscribers. A joint declaration issued Feb. 6 by a labor-management-government task force on strengthening retirement pension functions explicitly stated that "the fund-type system will operate in parallel with the existing contract-type system, not replace it." Workplaces would be free to run both models simultaneously as needed.


fact0514@heraldcorp.com