This Year’s Rollercoaster Returns of Bank Retirement Pensions Between 'Heaven and Hell' (Comprehensive)

Q3 Top 5 Banks DB Type 1.65%
Employee-Directed DC Type 2.13%
DB, DC, IRP Reserves 88.8178 Trillion Won

[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 (COVID-19).

According to the Bankers Association on the 23rd, the average yield of defined benefit (DB) type retirement pensions at the five major banks (Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup) 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 defined contribution (DC) type pensions, 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 yields turned positive at 0.73%, followed by an average yield of 5.58% in the third quarter across the five major banks.

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 are relatively decent yields 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 ranging between -0.84% and 0.12% in the first quarter, they rose to between 1.84% and 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 at 1.65%, DC type at 2.13%, IRP at 2.00%), have been criticized as being comparable to the interest rates of savings bank fixed deposits. The retirement pension, introduced to help workers accumulate assets for stable retirement preparation, struggles to shake off the stigma of "meager interest" due to its low yields 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.

The total accumulated funds combining DB type, DC type, and IRP in the third quarter of this year amounted to KRW 88.8178 trillion at the five major banks. This means that about KRW 90 trillion is invested in financial products for retirement preparation. A banking industry official said, "It is necessary for companies and workers, who are the operators of retirement pensions, to increase the proportion of stocks, domestic and international funds, and alternative investments 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.