The accumulated funds in the retirement pension default option exceeded 40 trillion won as of the end of the 4th quarter of last year. The number of subscribers is more than 6.3 million. Among all subscribers, 84% chose the least risky investment option, "ultra-low risk products," which accounted for 88% of the total accumulated funds.
To alleviate the phenomenon of concentration in guaranteed principal and interest products, the government decided to disclose the proportion of accumulated funds sold by risk grades starting this year. Additionally, there are plans to change product names to emphasize "investment" instead of "risk."
◇40 trillion won in accumulated funds after one and a half years of the default option
The Ministry of Employment and Labor and the Financial Supervisory Service disclosed the accumulated funds of the default option as of the end of the 4th quarter of 2024.
According to the disclosure, the accumulated funds at the end of the 4th quarter of last year were 40.67 trillion won, a 219% increase compared to the same period last year (12.55 trillion won). The number of subscribers during the same period rose to 6.31 million, an increase of 32%.
The default option automatically allocates the retirement pension contributions to a pre-designated financial product when a worker does not decide on a financial product to manage their contributions. This includes defined contribution (DC) retirement pensions and individual retirement pensions (IRP). It was officially implemented on July 12, 2023, following a one-year grace period after its introduction in July 2022.
Currently, 41 retirement pension providers are selling and managing 315 products with government approval. In terms of accumulated funds, KB Kookmin Bank ranks first with 7.73 trillion won, followed by Shinhan Bank (7.12 trillion won), IBK Industrial Bank (5.66 trillion won), and Hana Bank (4.33 trillion won).
Among all default option subscribers, 3.34 million are under the DC system, and 2.97 million are under the IRP system. By risk grade, ultra-low risk accounts for 5.33 million, or 84.46%. This is followed by low risk (420,000; 6.6%), medium risk (330,000; 5.2%), and high risk (230,000; 3.6%).
Annual revenue rates varied by risk grade. The annual revenue rate for high-risk grade products managed for over a year is 16.83%, while the ultra-low risk rate is only 3.32%. Low risk stands at 7.20%, and medium risk at 11.77%.
◇Improving the concentration of guaranteed principal and interest products is a 'homework'
The government noted that since the purpose of introducing the default option system is to raise revenue rates, it also revealed measures to alleviate the concentration phenomenon in ultra-low risk products.
Starting with this year's disclosures, the proportion of accumulated funds by risk grade of retirement pension providers will be publicly announced. This aims to inform subscribers of the extent of concentration in products with relatively low revenue rates and encourage proactive investments. A gap of 31.87 percentage points in revenue rates was noted between ultra-low risk products and high-risk products managed for over a year.
A Ministry of Employment and Labor official said, "We will disclose the status of the default option quarterly, and this year, we have publicly introduced the proportion of accumulated funds and revenue rates by risk grades for the first time."
Additionally, the government plans to change the names of default option products starting in April this year. Given that the emphasis on "risk" in product names has led subscribers to focus on guaranteed principal and interest products, the pension providers raised this concern.
The government plans to emphasize investment through the new names. Ultra-low risk will become "stable type," low risk will be "stable investment type," medium risk will be "neutral investment type," and high risk will be "active investment type."
A Ministry of Employment and Labor official stated, "We plan to enable subscribers to choose default option products that suit their preferences."