The National Pension Service, dubbed the 'big player of the capital market', has revealed its intention to enter the retirement pension market. While pension reforms can delay the exhaustion of the fund, they cannot be avoided. From the perspective of the National Pension Service, the 400 trillion won retirement pension market is interpreted as the best option for extending life. There is no particular reason for the political arena and government to oppose this scenario, seen as a way to release strong megabyss. Private operators are concerned about the National Pension Service's territorial encroachment.
According to the public institution management information disclosure system (Alio) on the 19th, the National Pension Service noted in its recently announced '2024 National Audit request and handling results report' that 'a bill has been proposed to allow the service to operate a fund-type retirement pension business' and stated, 'We will strive to contribute to strengthening the guarantee of the people's retirement income according to the National Assembly's bill discussion results.'
This is a response from the National Pension Service to the National Audit request demanding, 'The National Pension Service should participate as a fund-type retirement pension operator to improve retirement revenue.' During the National Audit last October, Han Ji-a, a member of the ruling People Power Party on the National Assembly's Health and Welfare Committee, said, 'The main reason the contract-type retirement pension system, which constitutes the core of private pensions, has not settled in our society is the low revenue,' and proposed that 'the introduction of a fund-type retirement pension should be considered.'
Retirement pensions are divided into contract-type and fund-type. Contract-type involves companies or employees directly contracting with retirement pension operators (financial companies). Fund-type entrusts the management of retirement pensions to a trustee corporation (fund management organization) composed of labor, management, and external experts, and operates the pensions through an internal fund management committee. The domestic retirement pension system, except for the small business retirement pension fund introduced in 2022 (for business sites with fewer than 30 employees), operates on a contract basis.
The problem is that while the domestic retirement pension market has grown to a scale of 400 trillion won, 90% of the accumulated funds are concentrated in principal-protected products. As concerns have continued about ensuring retirement security under the current state, arguments to grow the fund-type retirement pension market instead of the contract-type have gained strength.
Recently, Kim Moon-soo, Minister of Employment and Labor, declared, 'We will introduce the fund-type retirement pension system.' The Ministry of Employment and Labor plans to conduct research related to the funding of retirement pensions and then begin the process of revising related laws within the year. To introduce the fund-type retirement pension system, the Retirement Benefits Guarantee Act must be amended.
The National Pension Service has refrained from making official statements regarding its entry into the fund-type retirement pension realm. Even though it avoided a direct reply in the National Audit request results report, industry insiders interpreted this as a covert expression of its intention to enter.
A senior official in the financial investment industry said, 'There is no disagreement between the ruling and opposition parties, the government is not opposed, and the National Pension Service itself has the opportunity to create new sources of income, so there would be no reason to refuse.' They noted, 'If the National Pension Service emerges as a megabyss in the retirement pension market, the government can benefit from the overall growth of the market size and can also induce private financial companies to maximize their revenues.'
The ruling and opposition parties have amicably proposed bills that would enable the National Pension Service to enter the fund-type retirement pension market. There is the 'Partial Amendment to the Employee Retirement Benefits Guarantee Act' led by Han Jeong-ae of the Democratic Party in August of last year and the 'Partial Amendment Bill to the National Pension Act' led by Han Ji-a in February of this year.
Entering the fund-type retirement pension market represents an opportunity for the National Pension Service to realize its 'dream of extending its life', especially in light of the impending exhaustion of funds. The currently discussed pension reform measures only propose to postpone the fund exhaustion date by 16 to 17 years from the existing timeline (2056), and they are not fundamental reform proposals. An industry insider remarked, 'From the perspective of the National Pension Service, there is no choice but to seek entry into the retirement pension market for survival.'
The entry of a major player into the retirement pension market is unwelcome to private financial companies that have fiercely competed for market share. A senior official in the asset management industry commented, 'The influence of the National Pension Service in the domestic capital market is already absolute, and if it monopolizes the 400 trillion won retirement pension market, private operators will struggle to seize real opportunities in a growing market.'