The National Pension Service's "depletion clock" is becoming more sensitive to the fund's rate of return. The National Assembly Budget Office recently analyzed that if the National Pension Service's average rate of return rises by 1 percentage point (p) above the previous outlook, the point at which the fund is exhausted could be pushed back by 13 years. Compared with the government's assessment three years ago that a 1 percentage point increase would add "five years," changes in returns are having a greater impact on long-term fiscal projections than in the past.
When returns rise, the depletion date can be delayed, but if market shocks worsen investment performance, the National Pension Service's lifespan could be significantly shortened. Experts noted that as the National Pension Service has grown larger, not only boosting returns but also managing loss risk has become more important.
◇ Three years ago: "Depletion delayed five years if returns rise 1 percentage point"
In a report released on the 18th titled "Revised fiscal outlook for the National Pension Service following improved fund performance," the National Assembly Budget Office projected that the National Pension Service fund would be depleted in 2069. This reflects setting the average assumed fund investment return applied to the 2026–2120 long-term outlook at 4.6%. The office analyzed that if the average return over this period is 1 percentage point higher, the depletion point would be pushed back by 13 years to 2082.
This differs from the analysis just three years ago. In the 2023 "Fifth National Pension actuarial valuation," the government analyzed that "if the fund investment return rises by 1 percentage point, the fund depletion point will be delayed from 2055 to 2060 by five years." While the two projections differ in projection period, base year, reserve size, and other assumptions, a simple comparison shows that in just three years, the 1 percentage point effect has grown substantially from five years to 13 years.
As the National Pension Service's reserves have grown to around 1,500 trillion won, the sensitivity of fiscal outcomes to returns appears to have increased. A 1 percentage point difference in returns produces a larger compounding effect over the long term. It has become a variable that shakes the pension's fiscal outlook itself, beyond simple investment performance. The government also explained in the 2023 fifth actuarial valuation that "the effect of a 1 percentage point rise in fund investment returns is the same as a 2 percentage point increase in the premium rate."
◇ The paradox of a 1,500 trillion won National Pension Service… returns must rise, but market shocks also grow
Conversely, this means that if a "negative" return occurs, the fiscal outlook can deteriorate just as quickly. Buoyed by a stock market boom, the National Pension Service posted its best-ever return last year (18.82%), but it recorded losses of -0.18%, -0.92%, and -8.22% in 2008, 2018, and 2022, respectively. Kim U-rim, an analyst in the social cost projection division at the National Assembly Budget Office, said, "Even with the same rate of return, those with larger principal make bigger gains and bigger losses, so the fiscal shock to the National Pension Service from falling returns is inevitably larger than in the past."
The problem is that as the importance of fund returns grows, the National Pension Service must make asset allocation decisions even more carefully. To raise returns, managing risk assets such as stocks, overseas assets, and alternative investments becomes more important, but given the fund's size, trading decisions themselves can amplify market volatility. The National Pension Service is both shaken by financial markets and a force that shakes the markets.
Earlier, the KOSPI on the 23rd posted its largest-ever drop (-9.99%), sinking to the 8,200 level. Some analysts said selling pressure from the National Pension Service's "rebalancing"-type orders contributed to the decline. They said the National Pension Service's decision at the end of last month to raise its domestic stock target weight and defer sales boomeranged during the subsequent market correction.
From the National Pension Service's standpoint, balancing "raising long-term returns to delay fund depletion" and "minimizing market shocks" has become more important. Yoon Seok-myeong, an honorary research fellow at the Korea Institute for Health and Social Affairs (KIHASA), said, "In the process of boosting fund returns, it must not distort the entire capital market or shock the broader economy," adding, "asset allocation and rebalancing should be carried out under the principle of minimizing market shocks, while keeping distance from political judgments or short-term stock market support logic."