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South Korea: Reform needed in corporate pensions

Source: Asia Insurance Review | Jun 2016

The operation of corporate pension plans in South Korea is seen as being too outdated to provide stable and high returns for future retirees in rapidly ageing Korean society, experts said.
   The total size of accumulated funds for corporate pension plans at banks, insurers and brokerages surged to KRW126.4 trillion (US$107 billion) or 8% of Korea’s gross domestic product in 2015 from KRW49.9 trillion in 2011, reported The Korea Herald citing data from the Financial Supervisory Service.
   However, an expert noted that 93% of subscribers of corporate pension plans take out their pension in a lump sum, rather than in monthly payments, and thus become exposed to the risk of using the money too fast.
   Low profitability is another problem that Korea’s corporate pension plans face, experts said.
   According to FSS data, the average annual return rate of funds under corporate pension plans managed by Korean banks from 2011 to 2015 stood at 2.5%. Local managers of retirement pensions have not been able to yield high returns due to a heavy allocation of the funds to principal-protected investment vehicles, noted a research fellow at the Korea Capital Market Institute.
   About 5.9 million, or 53.5% of regular employees, subscribed to retirement pensions as of the end of 2015, according to FSS data.
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