Most customers who entrusted their retirement pension management to a securities company to prepare for life after retirement have found that their management revenue does not even reach the commission fees. Of course, customer indifference has a significant impact on this. If the revenue is too low, customers should pay attention by changing investment products, but the majority of customers leave it unattended.
However, even so, there are criticisms that securities companies should not collect commissions in such cases. If they are not going to provide management, there is no justification for collecting commissions. This led to the introduction of the default option, but the default option is also concentrated in ultra-low-risk products, and revenue improvement is not properly happening. In this situation, proposals are emerging in the National Assembly to link retirement pension revenue and fees.
According to data submitted by Financial Supervisory Service to Democratic Party lawmaker Park Min-kyu on the 7th, the commission rates for non-guaranteed principal and interest products for all retirement pension operators (financial companies) as of 2023 were 0.72% for defined contribution (DC) plans and 0.73% for individual retirement pensions (individual IRP). Both DC and individual IRPs are managed by workers, but individual IRPs differ from DC plans in that workers can autonomously decide on individual participation. While a commission rate of less than 1% might seem low, the management revenue was generally lower than this. The average three-year revenue for 13 securities companies’ DC plans was only 0.47%.
Looking individually, the DC plan revenue for Yuanta Securities customers over three years (2021-2023) was 0.44%, which is lower than the annual commission of 0.83%. Shin Young Securities and Korea Investment & Securities also saw customer revenues of 0.77% and 0.07%, respectively, both lower than their annual commissions of 0.86% and 0.55%. Considering the annual average inflation rate of 2-3%, real assets have actually been diminished.
There were cases where the management revenue was entirely negative, leading to a decrease in nominal assets. The revenue for Hyundai Motor Securities customers over the last three years under the DC plan was -0.37%, while IM Securities (formerly Hi Investment & Securities) customers saw -0.24%, and KB Securities customers saw -0.06%. This means that customers who entrusted their money to these securities companies only paid commissions to the financial company and lost their principal.
The situation is similar for individual IRPs, where customers with high interest in retirement pensions enroll. Among the 13 disclosed securities companies, eight had commission rates lower than their three-year revenue rates.
Looking at it by securities companies, the three-year average revenue for customers of Hana Securities was -0.18%, the lowest among securities firms. Korea Investment & Securities (0.04%), KB Securities (0.21%), and Hanwha Investment & Securities (0.22%) followed. The highest average revenue for three-year individual IRP of Samsung Securities was 1.49%. However, even this is essentially a negative investment revenue when considering the inflation rate.
Lawmaker Park Min-kyu noted, "It is necessary to reform the system so that the fees applied are based not simply on the accumulated assets but on the management performance and service levels, and to set an upper limit."
However, there is a system that was introduced to improve customers' retirement pension revenues. It is called the default option. The default option is a system where, if customers do not specify a specific financial product to manage, financial companies, such as securities firms, manage retirement pensions according to the level of risk selected at the time of enrollment.
As of July 2023, when it was fully implemented, revenue has approached the inflation rate, but many evaluations deem it still insufficient. The recent one-year revenue has remained at an average level of around 4%. This is largely due to the concentration in ultra-low-risk products.
Of the 32.9 trillion won in default option deposit amounts, 89% (29.3 trillion won) are in ultra-low-risk. In trying not to lose even 1 won of the principal, they are missing out on potential revenues.
For this reason, financial authorities are considering improvements to the default option system. The purpose of the business is for financial companies to manage according to the economic situation once the customers entrust their assets, but currently, the products and proportions managed by risk levels are fixed, so they are being managed mechanically. For example, Mirae Asset Securities’ ‘Mid-risk Portfolio 1’ consists of 75% Mirae Asset Strategic Allocation TDF 2045 and 25% Busan Bank time deposits. This ratio cannot be changed by the subscriber.
A financial authority official stated, "It is common sense for the operator to manage the default option, but currently, the structure in Korea is not like that. Ultimately, customers should choose investment products, so improvements are needed."