Bank Retirement Pension Returns Riding a Roller Coaster

Q3 5 Major Banks DB Type 1.65%
Employee-Directed DC Type 2.13%

[Asia Economy Reporter Kim Min-young] This year, the retirement pension yields of major commercial banks experienced rollercoaster-like fluctuations due to the spread of the novel coronavirus infection (COVID-19).

According to the Bankers Association on the 23rd, the average defined benefit (DB) type retirement pension yield of the five major banks (Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup Bank) in the third quarter of this year was recorded at 1.65%.

By bank, Shinhan Bank had the highest yield at 1.84%. Hana Bank followed with 1.70%, while Kookmin and Woori Banks recorded 1.62% and 1.60%, respectively. Nonghyup Bank had the lowest yield at 1.49%.

The average yield of the defined contribution (DC) type, where employees directly instruct product management, was 2.13%. By bank, yields ranged from 2.04% to 2.45%.

At first glance, these yields seem very low, but they represent improvements of 0.09 percentage points and 1.27 percentage points compared to the first quarter yields of 1.56% (DB type) and 0.86% (DC type), respectively.

In the first quarter alone, the domestic stock market and others were severely contracted due to the direct impact of COVID-19, resulting in numerous negative yields in retirement pensions. In particular, non-principal-guaranteed products, which do not mainly consist of bank or savings bank deposit products, were hit hard by the plunge in domestic and international stock markets. Non-principal-guaranteed products include domestic and international stocks, bonds, commodity exchange-traded funds (ETFs), and target-date funds (TDFs) sold by global fund companies. Especially in the DC type, all five major banks recorded negative yields for non-principal-guaranteed products. The average yield was -6.46%.

Then, as the domestic and international stock markets showed a V-shaped rebound in the second quarter, the DC type non-principal-guaranteed product yield turned positive at 0.73%, followed by an average yield of 5.58% among the five major banks in the third quarter.

Of course, considering that the KOSPI and KOSDAQ rose more than 50% from their lows during this period, these yields can be considered low. However, bank officials explain that these yields are relatively decent given that the products involve alternative investments such as domestic stocks, overseas stocks, bonds, and real estate.

The individual retirement pension (IRP) yields also fluctuated between "heaven and hell" this year. From yields of -0.84% to 0.12% in the first quarter, they rose to 1.84% to 2.27% in the third quarter, following the stock market trends.

Nevertheless, these yields, which only reach the low 2% range at most (DB type (1.65%), DC type (2.13%), IRP (2.00%)), have been criticized as being comparable to the interest rates of savings bank fixed deposits. Despite the retirement pension being introduced for asset growth to ensure stable retirement preparation for workers, its yields remain too low, earning the stigma of "meager interest" despite the risk of losses. Even looking at the 10-year long-term yields of these three products, they remain in the mid-2% range.

A banking industry official said, "There is a need for companies and workers, who are the operators of retirement pensions, to increase the proportion of alternative investments such as stocks, domestic and international funds, and real estate from a long-term perspective," adding, "It is now time for institutional support from the government and financial companies to maximize yields."

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