The government is expected to unveil an improved corporate pension plan at the end of this year with an extension of corporate pension plans and deregulation on the of their operations.
Under the proposed revision of the corporate pension system, Korean companies with over 300 employees will be obliged to run a retirement pension plan for their employees by 2016, and this will be expanded to all companies by 2024.
State-run think tank Korea Development Institute proposed the improvements at the policy seminar, held in Seoul last Wednesday
Currently, around 5 million employees, or 48 percent of South Korea’s total labor force, are covered by corporate pension plans.
According to the proposal, the government is also expected to consider easing regulations on corporate pension fund operations, which will allow asset managers to invest more funds into high-risk, high-yield products like stocks.
Currently, regulations on defined-contribution pension, which does not promise a specific benefit at retirement, are stricter than defined-benefit contribution, which promises a predetermined monthly benefit. Now, only 40 percent of defined-contribution pensions are allowed to be invested in risky assets, but this will be raised to 70 percent.
The shift in the retirement fund operation has been debated as concerns were raised that current operations, bring insufficient yields by focusing more on safety than profitability.
The profitability of last year’s retirement pension stood at around 3 percent, with around 90 percent of the funds invested in low-return accounts, according to the Financial Supervisory Service.
According to government statistics, South Korea’s elderly, those aged 65 or older, will account for 32 percent of the total population by 2040, while poverty among old people stood at around 45 percent in 2009.
Nonetheless, the national pension will not be able to cover the funds required for retirees as it is expected to run out by 2060, according to the state-run Korea Development Institute.
By Shin Ji-hye (shinjh@heraldcorp.com)
