The National Pension Service's "depletion clock" is becoming more sensitive to fund management returns. The National Assembly Budget Office recently analyzed that if the National Pension Service's average return rises by 1 percentage point (p) above the previous outlook, the point of fund exhaustion could be delayed by 13 years. Compared with the government's estimate three years ago that a 1 percentage point rise would mean "five years," changes in returns now have a greater impact on long-term fiscal projections than in the past.
Higher returns can delay depletion, but if market shocks worsen performance, the National Pension Service's lifespan could be sharply shortened. Experts noted that as the fund has grown larger, not only boosting returns but also managing loss risk has become more important.
◇ Three years ago: "When returns rise 1 percentage point, depletion is delayed five years"
In a report published on the 18th, "Revised fiscal outlook for the National Pension Service due to improved fund management performance," the National Assembly Budget Office projected the fund would be exhausted in 2069. This stems from setting the average of the assumed fund management rate of return applied to the 2026–2120 long-term outlook at 4.6%. The office analyzed that if the average return during this period were 1 percentage point higher, the depletion point would be delayed by another 13 years to 2082.
This differs from the analysis just three years ago. In the 2023 "5th National Pension fiscal projection," the government said, "If the fund investment return is 1 percentage point higher, the depletion point is delayed five years, from 2055 to 2060." Although the two outlooks differ in projection periods, base years, and reserve sizes, a simple comparison shows that in just three years, the 1 percentage point effect has grown significantly, from five years to 13 years.
As National Pension Service reserves have grown to around 1,500 trillion won, sensitivity to returns has increased for the system's finances. The same 1 percentage point difference in returns generates a larger compound 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 5th fiscal projection that "the effect of a 1 percentage point rise in the fund investment return is the same as a 2 percentage point increase in the contribution rate."
◇ The paradox of a 1,500-trillion-won National Pension Service: needs higher returns, but market shocks also grow
Conversely, when "negative" returns occur, the fiscal outlook can worsen just as quickly. Buoyed by a stock market boom, the National Pension Service last year posted its best-ever return (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 at the National Assembly Budget Office's Social Cost Projection Division, said, "Even at the same rate of return, those with more principal gain more and lose more, 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 be even more prudent in asset allocation decisions. To raise returns, managing risk assets such as stocks, overseas assets, and alternative investments becomes more important, but with a larger fund size, trading decisions themselves can amplify market volatility. The National Pension Service is both shaken by the financial market and a force that shakes the market.
Earlier, the KOSPI on the 23rd posted its biggest-ever drop (-9.99%), sinking to the 8,200 level. Analysts said National Pension Service "rebalancing"-driven selling added downward pressure. They said the decision to delay sales after the National Pension Service raised its domestic stock target weight at the end of last month boomeranged in the subsequent market correction phase.
For the National Pension Service, the balance between "raising long-term returns to delay fund depletion" and "minimizing market shocks" has become even more important. Yoon Seok-myeong, an honorary research fellow at the Korea Institute for Health and Social Affairs (KIHASA), said, "In the process of raising 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, at arm's length from political judgments or short-term stock-boosting logic."