Impact of COVID Shock... Retirement Pension Returns Plummet (Comprehensive)

Average Return of Defined Contribution (DC) Type 0.86%
Principal-Not-Guaranteed Type, IRP Returns 'Negative'

[Asia Economy Reporter Kim Min-young] The defined contribution (DC) type retirement pension yield of the five major banks in the first quarter of this year recorded in the 0% range. This is due to the impact of the principal-guarantee-free product yields plummeting into the negative amid the domestic and international financial markets fluctuating due to the spread of the novel coronavirus infection (COVID-19). The retirement pension, introduced to help workers prepare stable retirement funds, seems to have turned into a source of worry rather than hope for retirement.

According to the Bankers Association on the 20th, the average DC-type retirement pension yield of Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup Banks in the first quarter was only 0.86%.

Last quarter, the yield of this product at these banks was a favorable average of 2.35%, but the yield significantly dropped in just one quarter.

By bank, Nonghyup Bank barely exceeded a 1% yield at 1.09%, but Hana Bank (0.90%), Shinhan Bank (0.87%), Woori Bank (0.85%), and Kookmin Bank (0.63%) fell into the 0% range. The principal-guaranteed product yields at each bank recorded between 1.81% and 1.93%, but the principal-guarantee-free product yields plunged into negative territory.

Kookmin Bank recorded the worst performance with a principal-guarantee-free product yield of -7.85%. It was followed by Hana Bank at -7.46%, Nonghyup Bank at -6.12%, Woori Bank at -5.61%, and Shinhan Bank at -5.29%. In the previous quarter, the principal-guarantee-free product yields of the five major banks ranged from 4.70% to 7.75%, marking a record high performance.

Unlike the defined benefit (DB) type retirement pension, the DC type is a product where the company deposits a fixed amount into the account monthly, and the worker manages the funds directly. Principal-guaranteed products mainly include deposit products, while principal-guarantee-free products can include domestic and international stocks, bonds, and commodity exchange-traded funds (ETFs).

In the first quarter of this year, the domestic and international stock markets sharply declined due to the impact of COVID-19, and this decline was fully reflected in the DC-type yields. Compared to the beginning of the year (January 2), the KOSPI index fell more than 20% by March 31, and during the same period, the U.S. Dow Jones index dropped about 24.1%, from 28,868.80 to 21,917.16.

The yield of the individual retirement pension (IRP), which is subscribed to for additional retirement funds, is even worse. Combining the yields of principal-guaranteed and principal-guarantee-free products, the yields ranged from -0.84% to 0.12% by bank. Looking at principal-guarantee-free products alone, Kookmin Bank recorded -10.01%, Nonghyup Bank -8.44%, Hana Bank -7.06%, Woori Bank -5.46%, and Shinhan Bank -5.04%, all major banks showing negative yields. Although IRP is managed individually with financial company advice, the negative yield this quarter is more painful as it had achieved up to 3.06% yield in the previous fourth quarter of last year.

The total accumulated funds combining DB, DC, and IRP in the first quarter of this year amounted to 84.9621 trillion KRW at the five major banks. Shinhan Bank had the largest amount at 22.5994 trillion KRW, followed by Kookmin Bank with 20.168 trillion KRW, Hana Bank with 15.8319 trillion KRW, Woori Bank with 13.9296 trillion KRW, and Nonghyup Bank with 12.4332 trillion KRW.

A financial industry official said, “Along with the National Pension, retirement pensions are a major source of retirement funds for workers,” adding, “Although retirement pensions should be evaluated based on long-term yields rather than short-term yields, the 10-year long-term yields of major banks are only around the high 2% to 3% range annually, so efforts by financial companies to maximize yields are urgently needed.”

This content was produced with the assistance of AI translation services.