The ruling Democratic Party (DP) has proposed a new bill to stir interest in Korean employers and employees in improving returns on their post-retirement scheme by hiring professional help or enabling competitive options to manage the funds.
Under the outline, the DP suggests to allow companies to establish a trust to manage their retirement savings with help of experts and a default option that gives discretion to financial institutions to manage retirement savings.
The nation’s private pension funds yielded a pitiful 1.01 percent return on average last year, below the on-year consumer price growth of 1.5 percent. The average returns over the last five years just came at 1.88 percent. Market experts believed they generated poor returns because most of the funds are invested very conservatively in investment vehicles that just guarantee principal and interest.
As of last year, private pension funds had 190 trillion won ($159 billion) in assets under management, according to the Financial Supervisory Service.
The Democratic Party’s ad hoc committee for capital market stimulation said on Monday the government needs to adopt fund-type private pension schemes that allow firms to set up their own fund management committee consisting of labor and management representatives and external specialists, to manage their retirement savings like the National Pension Service. The committee also agreed that the government should give a default option to defined contribution (DC) pension schemes, where employees can delegate their investment decisions to financial experts.
The government already proposed a bill to introduce the fund-type retirement pension plans, the ruling party said, and it will soon embark on a process to legislate a bill enabling the default option after conducting a consultative meeting.
The retirement pension funds have mostly been invested in low-yielding vehicles such as fixed bank deposits or government bonds to ensure safety. But the retirement savings have been posting poor returns as the country’s benchmark interest rate has remained low at 1.75 percent.
To boost their returns, the government and private sector have kicked off various sessions to discuss other options such as giving financial firms more flexibility in managing the funds.
By Kim Je-lim and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]