South Korea will ease what have been strict investment rules for retirement pensions to allow wider options of riskier assets such as stocks, a senior government official said Sunday.
The plan is part of comprehensive retirement pension measures jointly drawn up by the finance and labor ministries and the Financial Supervisory Service that will be announced later this month.
“The measure is focused on increasing post-retirement income by preventing the number of the impoverished elderly from growing and raising profitability from asset management,” a senior government official said, asking anonymity as the plan has not yet been confirmed.
The measure will be applied to the defined contribution (DC) retirement pension plan, in which a certain amount or percentage of money is set aside each year by companies to benefit employees.
The DC retirement pension has been tightly restricted in its investment options, held back from investing more than 40 percent of its total assets in riskier destinations such as securities and funds.
Under the new system, DC retirement pension operators can increase the proportion of risky assets up to 70 percent of the total, a level equivalent to the defined benefit (DB) retirement pension, a formula based on an employee’s terminal salary.
While the latest measure is expected to increase inflows of pension money to the stock market, experts are calling on the government to come up with the means to protect the pension money.
“Deregulation without making buffers could undermine the retirement pension’s primary goal of ensuring workers’ stable post-retirement lives,” said Ryu Kon-sik, a senior researcher at the Seoul-based Korea Insurance Research Institute. “Even if the government lowers the investment rules, it should make regulations to require a fiduciary to take liability and ensure beneficiary’s rights in case of losses from investment.”
The new measure also requires companies with over 300 employees to have retirement pension plans starting from 2016 and phase in the system to all workplaces by 2024.
Nearly 5 million, or half of regular employees, were currently subscribed to retirement pensions as of end-March, with the total amounting to 85.3 trillion won (US$83.4 billion), according to government data. (Yonhap)
