The government is moving to halt enrollment in, or remove from the market, poorly performing default option (pre-designated management) products to raise retirement pension returns.
The Ministry of Employment and Labor (MOEL) on the 18th reported the "retirement pension overhaul items and future plans" containing these measures at a full meeting of the National Assembly's special committee on pension reform.
According to the ministry, retirement pension reserves at the end of last year totaled 501 trillion won, up 70 trillion won (16.1%) from a year earlier. The annual rate of return rose to 6.47% last year from 0.02% in 2022, marking a record high. Still, 75% of the reserves remain concentrated in principal-and-interest-guaranteed products.
The ministry decided to introduce performance evaluations for retirement pension default options for the first time. A default option is a system under which, if a subscriber does not provide investment instructions for reserves for a certain period, the funds are automatically managed in a predesignated product. It will regularly evaluate product-by-product returns and management performance, and it is even considering measures to restrict enrollment in or remove products with low performance.
It will also push to institutionalize a pilot program for discretionary investment by retirement pension robo-advisers that entrust asset management to artificial intelligence (AI).
It will also move to improve the structure for midterm withdrawals. The ministry said it will introduce collateral-backed loan products using retirement pension reserves to curb midterm withdrawals. It will also encourage the development of annuity products that can share risks such as investment returns and inflation when taken as a pension.
Meanwhile, the Ministry of Employment and Labor (MOEL) is also pushing for phased mandatory retirement pensions for all business sites and the introduction of fund-type retirement pensions. The Act on the Guarantee of Employees' Retirement Benefits containing these measures is slated for revision within this year.