The Ministry of Employment and Labor announced on the 21st that it has launched a consultation group to promote the introduction of a fund-type retirement pension system this year.
The newly launched consultation group comprises experts from academia and research institutions in fields such as economics, management, social welfare, and law. They are expected to discuss ways to introduce a fund-type method for the retirement pension system by June this year. Currently, most domestic retirement pensions are operated on a contract basis.
The ministry plans to propose legislation for the introduction of the fund-type retirement pension system in the second half of the year based on the results discussed by the consultation group.
The government's effort to diversify the retirement pension system stems from low revenue. The annualized revenue rate for retirement pensions over the past 10 years is 2.07% as of the end of 2023. Even if the period is reduced to 5 years, the annualized revenue rate is 2.35%. Considering the inflation rate of 3.6% in 2023, the real revenue rate is negative.
In contrast, the revenue rates for overseas retirement pensions are more than double those of Korea. For instance, in Australia, the average revenue rate for retirement pensions over 5 years is 5.2%, while over 10 years it is 7.2%.
The government points to issues with the management methods as the reason for the disparities in revenue rates between overseas pensions and those in Korea. In Australia, various methods such as contract-based and fund-based pensions are utilized, whereas Korea predominantly operates on a contract basis.
In the contract type, the subscriber directly signs a contract with a private financial institution providing retirement pension services and must choose their own investment products to grow their savings. Consequently, it tends to be skewed towards stable products that guarantee the principal. In the fund type, a separate intermediary organization composed of investment specialists invests on behalf of subscribers who lack investment information.
In Korea, the National Pension Service operates on a fund-type basis. The operating revenue rate for the National Pension Fund in 2024 is 15.00%. The accumulated revenue rate is an average of 6.82% per year.
Kim Yoo-jin, head of the Labor Policy Office at the Ministry of Employment and Labor, noted, "This year marks the 20th anniversary of the introduction of retirement pensions, and we view it as a period for qualitative advancement in retirement pensions, pushing for the introduction of the fund-type retirement pension as a key task. We will create a fund-type model that can successfully settle in our country."