To prepare for retirement funding, customers entrusted their retirement pension management to securities firms, but it has become apparent that the management revenue usually fails to cover the fees. Of course, customer indifference plays a significant role here. If the revenue is too low, one should pay attention by changing the investment products; however, most customers neglect this.
However, even so, there are arguments that securities firms should not collect fees in such cases. If they are not going to manage the funds, there is no justification for collecting fees. This is why the default option was introduced, but the default option is also concentrated on ultra-low-risk products, meaning that revenue improvement is not happening properly. Given this situation, there are proposals in the National Assembly to link retirement pension revenues and fees.
According to data submitted by the Financial Supervisory Service on the 7th to Park Min-kyu of the Democratic Party of Korea, as of 2023, the commission rate for principal and interest non-guaranteed products among all retirement pension providers (financial companies) was 0.72% for defined contribution (DC) plans and 0.73% for individual retirement pension (IRP) plans. Both DC plans and individual IRPs share the common feature that they are managed by the workers; however, individual IRPs differ from DC plans in that workers can autonomously decide on individual subscriptions. Although the commission rate may feel low at less than 1%, the management revenue is generally lower than this. The three-year average revenue of 13 securities firms in DC plans was a mere 0.47%.
Individually, the DC plan revenue of Yuanta Securities customers over three years (2021-2023) was 0.44%, which was less than the annual fee of 0.83%. Shinyoung Securities and Korea Investment & Securities also reported customer revenues of 0.77% and 0.07%, respectively, both lower than their annual fees of 0.86% and 0.55%. Considering that the average inflation rate is between 2% and 3%, real assets have actually been diminished.
In some cases, the management revenue was so low that even nominal assets decreased. The most recent three-year revenue for customers of Hyundai Motor Securities in the DC plan was minus (-) 0.37%, while customers of IM Securities (formerly Hi Investment & Securities) had a revenue of -0.24%, and KB Securities customers had -0.06%. This means that customers who entrusted their funds to these securities firms only paid fees to the financial companies while losing their principal.
The situation is similar for individual IRPs, where customers interested in retirement pensions are subscribing. Among the 13 securities firms that disclosed their individual IRP fee rates, 8 had revenue rates lower than their three-year commission rates.
By securities firm, Hanwha Securities customers had the lowest three-year average individual IRP revenue at -0.18%. This was followed by Korea Investment & Securities (0.04%), KB Securities (0.21%), and Hanwha Investment & Securities (0.22%). The highest was Samsung Securities, with an average individual IRP revenue of 1.49% over three years. However, considering inflation, the actual investment revenue is effectively negative.
Park Min-kyu noted, "It is necessary to revise the system so that fees applicable solely to accumulated assets are tied to management performance and service levels, with an upper limit set."
However, there is a system introduced to improve customers' retirement pension revenue. This is the default option. The default option is a system where if customers do not specify which financial product to manage, they only need to select the level of risk when subscribing, and then financial firms, such as securities firms, manage the retirement pension accordingly.
Since its official implementation in July 2023, the revenue has approached the inflation rate, but many still evaluate it as insufficient. The one-year average revenue is only about 4%. Most are concentrated on ultra-low-risk products.
Of the 32.9 trillion won contributed to the default option, 89% (29.3 trillion won) is in ultra-low-risk products. In the effort to not lose even a single won of principal, they are missing out on revenue.
For this reason, financial authorities are considering improvements to the default option system. The purpose of the business is for financial firms to manage funds based on economic conditions when entrusted, but currently, products and their proportions are fixed by risk level, leading to mechanical management. For example, the 'medium-risk portfolio 1' of Mirae Asset Securities consists of 75% Mirae Asset Strategic Allocation TDF2045 and 25% Busan Bank time deposits. This ratio cannot be changed by the subscriber.
A financial authority official stated, "It is reasonable for the provider of the default option to manage it automatically, but currently, that is not the structure in Korea," adding, "Ultimately, customers need to select investment products, so improvements are necessary."