The government and the ruling party plan to announce a plan for the "funding of retirement pensions" within this month. Currently, most retirement pensions are in principal-guaranteed products, keeping the annual rate of return in the 2% range. A plan is being pursued to bundle retirement pensions into a single fund like the National Pension Service and raise returns through asset management.
◇Democratic Party bill model "small and midsize enterprise retirement pension fund" had a 9% return last year
The retirement pension funding plan has been under discussion since last year in the "labor-management-government task force to strengthen retirement pension functions," which the government and the Democratic Party are running. Strengthening retirement pension functions is one of the 123 national tasks of the Lee Jae-myung administration.
As of the end of last year, retirement pension reserves totaled 431.7 trillion won. The problem is the low rate of return. Because most retirement pensions are tied up in principal-guaranteed products like deposits, returns are low. A total of 82.6% of retirement pension reserves are invested in principal-guaranteed products such as deposits. The average return on retirement pensions over the past five years was 2.86%, about one-third of the National Pension Service's return (8.13%).
Among the amendments to the Act on the Guarantee of Employees' Retirement Benefits introduced by Democratic Party lawmakers in this National Assembly, three bills are related to funding retirement pensions. A Democratic Party official said, "We will finalize the plan based on the contents of the bills submitted to the National Assembly."
All three bills submitted by Democratic Party lawmakers call for expanding the "small and midsize enterprise retirement pension fund (Blue Seed)." Blue Seed is a fund-type retirement pension for small and midsize enterprises operated by the Korea Workers' Compensation & Welfare Service (K-COMWEL). Since its launch in 2022, it has steadily posted returns in the 6% range, and last year its return exceeded 9%.
◇All three bills set up a separate fund management entity
There are currently two types of retirement pensions. One is the defined benefit (DB) type, in which the company is responsible for management. The other is the defined contribution (DC) type, in which the worker manages directly after the company pays a certain contribution. Among these, DB plans often enroll in principal-guaranteed products because there is no incentive to raise returns. This is cited as a cause of low returns.
All three Democratic Party bills on funding retirement pensions call for establishing a separate fund management entity.
A bill introduced by Rep. Han Jeong-ae would allow employers to establish and operate a trustee corporation directly. It also includes expanding Blue Seed from businesses with 30 or fewer employees to those with 100 or fewer employees.
Rep. Park Hong-bae's bill is a public institution fund model. The government would establish a Retirement Pension Corporation to manage the fund. The Retirement Pension Corporation under the Ministry of Employment and Labor (MOEL) would also take over Blue Seed from the Korea Workers' Compensation & Welfare Service (K-COMWEL). It would be like creating a new public institution similar to the National Pension Service (NPS).
Rep. Ahn Do-geol's bill would establish a specialized retirement pension fund management company. Employers would set up a specialized retirement pension fund manager and outsource operations. It would also expand Blue Seed to all small and midsize enterprises, and create a specialized retirement pension fund management unit within the Korea Workers' Compensation & Welfare Service (K-COMWEL).
Meanwhile, revitalizing retirement pensions aligns with the Lee Jae-myung administration's key task of invigorating the capital market. The idea is that as retirement pension reserves surge every year, channeling them into the stock market could also help activate the capital market. According to the Korea Capital Market Institute, by 2040 retirement pension reserves are expected to reach at least 1,172 trillion won.
Park Moon-hyun, an analyst at KB Securities, said, "If the newly created Retirement Pension Corporation structures its portfolio by benchmarking Blue Seed (the small and midsize enterprise retirement pension fund), a significant amount of money could also flow into domestic bonds."
On this point, some noted, "Retirement pensions are for old-age security, and if they are put into capital market activation and returns fall, it could become a serious problem."