On the 27th, the Ministry of Employment and Labor and the Financial Supervisory Service announced that they will hold a meeting at the Korea Financial Investment Association in Yeouido, Seoul, to discuss improving the revenue of defined benefit (DB) retirement pensions. Officials and executives from 42 retirement pension providers participated in the meeting.
As of the end of last year, the total amount of retirement pension reserves was 431.7 trillion won. Of this, DB-type retirement pensions accounted for 214.6 trillion won, making up half of the total. However, the revenue of DB-type products was 4.04% last year, which is significantly lower than the 5.18% of defined contribution (DC) products and the 5.86% of individual retirement pensions (IRP).
The government has organized this meeting to discuss ways to improve the revenue of DB-type products. DB-type retirement pensions provide workers with a fixed salary upon retirement, so the revenue does not directly affect the salary levels. However, if the revenue decreases, the employers' burden of contribution increases, so it is necessary to improve revenue to enhance the sustainability of the system.
According to an analysis conducted by the government on the operational status of 42 retirement pension providers managing DB systems, it was found that 37 providers (88.1%) manage over 90% of DB reserves with principal and interest guaranteed products. This is analyzed as a reason for the low revenue of DB-type products.
However, Korea Investment & Securities was noted as a case of excellence for actively managing DB reserves with dividend-type products. Hanwha Securities has been diversifying approximately 70% of the reserves into performance-linked products such as alternative investments, stocks, and bonds by utilizing its in-house management department. The average revenue of Hanwha Securities' DB-type retirement pensions over the past six years was found to be 2.5% higher than the average.
The FSS noted, "Retirement pension providers should establish asset allocation plans that are appropriate for financial experts and actively invest in performance-linked products," and added, "Please consider providing performance bonuses linked to long-term results to employees."
Hana Bank also introduced cases of advising clients on DB operations during this meeting. This includes recommending target revenue settings and providing investment status and revenue reports for similar clients to encourage long-term diversifications.
The Ministry of Employment and Labor and the FSS stated, "If it is difficult for a corporation to manage reserves, they can receive advice and know-how through exchanges with retirement pension providers," and added, "We hope that you actively utilize the practical casebook jointly published by the Ministry of Employment and Labor and the FSS."
They also added, "Starting with this seminar, we plan to hold meetings for listed companies in the second half of the year," and stated, "We will continue to strive to improve the revenue of DB-type retirement pensions."