In February, the government said it would unify the system by replacing the existing severance pay scheme, which sets aside workers' severance pay within companies, with a "retirement pension" method that deposits funds with external financial institutions. It also said it would introduce a "fund-type retirement pension" that consolidates retirement pensions scattered across individuals and corporations into a single pool for management.
To manage the "fund-type retirement pension," the government decided to establish an independent fund management committee with participation from labor, management, and investment experts. On the 7th, it was learned that a public-private task force would begin in earnest this month to discuss whether to include the National Pension Service in this committee. The task force includes relevant ministries such as the Ministry of Employment and Labor (MOEL), the Ministry of Economy and Finance, the Financial Services Commission, as well as experts, labor, and management.
Given its experience managing assets worth thousands of trillions of won, the National Pension Service is said to hold the view that participating in the management of fund-type retirement pensions would help raise returns. On the other hand, within the task force, some noted that the National Pension Service and retirement pensions differ in nature, and there is reportedly a negative view of the National Pension Service's participation.
◇ "Will help boost returns" vs. "not proven"
The National Pension Service says it can help improve retirement pension returns by leveraging its experience managing about 2,000 trillion won in national pension funds. The way the national pension is managed now is a defined benefit (DB) plan that pays a set amount at a specific time (age 65). Based on DB products, the National Pension Service's average annual return is about 8%, while retirement pensions are about 2.4%.
Conversely, some within the task force argue that the National Pension Service's capability to manage retirement pensions has not yet been proven. That is because the management characteristics of the National Pension Service and retirement pensions are different. The fund-type retirement pension will be introduced as a defined contribution (DC) plan, in which severance pay is paid at the time the worker retires and the return is determined by the management performance at that point.
Private financial firms are also reportedly negative about the National Pension Service's participation in managing fund-type retirement pensions. Until now, private banks, securities firms, and insurers have managed retirement pensions. They have invested in various infrastructure, such as expanding sales networks, to manage retirement pensions, and if the National Pension Service participates, the financial firms' positioning could shrink.
◇ Limited participation in management, such as for small and midsize corporations, also mentioned
Within the task force, there are also reports of opinions that the National Pension Service should manage only the retirement pensions entrusted by small and midsize corporations. The judgment is that if the National Pension Service, which has stably managed large-scale assets over a long period, takes part in management, small and midsize corporations could adopt retirement pensions more actively.
According to the labor ministry, as of 2024, the adoption rate of retirement pensions at business sites with 300 or more employees reached 92.1%, while those with fewer than 30 employees stood at 23.2%.