[Asia Exclusive] "Retirement Pension Market to Experience the Greatest Growth Over the Next 10 Years"

Cho Hong-rae, CEO of Korea Investment Trust Management

Increasing Importance in the Domestic Pension Market

Average Annual Growth Rate of 15.6% Since 2014

TDF ‘Alseora Series’ Showing Strong Returns

Challenges for Fund-type Retirement Pensions and Tax Benefit Improvements

Hongrae Cho, CEO of Korea Investment Management

[Asia Economy Reporter Eunmo Koo] Cho Hong-rae, CEO of Korea Investment Trust Management, identifies retirement pensions as the sector with the greatest growth potential going forward. He stated, "Considering the population age structure, the retirement pension market will be the fastest growing market over the next 10 years," adding, "An aging society naturally means an expansion of the pension market, so growth is inevitable."

According to Statistics Korea, Korean society entered an aging society in 2017, with the proportion of elderly aged 65 and over exceeding 14%, and by 2026, the elderly population will reach 21% of the total, entering a super-aged society. Many elderly people face increasing concerns about how to sustain their livelihoods. In situations where retired wage earners must sell their homes or deplete lifelong savings to live, private pensions, especially retirement pensions, play a crucial role.

The importance of retirement pensions in the domestic pension market is steadily increasing. Pension benefits for wage earners are broadly categorized into public pensions such as the National Pension and private pensions including retirement pensions and individual pensions (pension savings). As of the end of last year, the domestic retirement pension balance stood at 221 trillion KRW, which is less than the individual pension balance of 351 trillion KRW, but the average annual growth rate since 2014 has been 15.6%, significantly outpacing the individual pension growth rate of 5.4% per year.

Korea Investment Trust Management also entered the retirement pension market early by launching the Target Date Fund (TDF) 'Korea Investment TDF Alseora Fund' series in March 2017 under CEO Cho’s leadership, which invests in asset allocation tailored to retirement timing. The 'Alseora Series' was designed in collaboration with T. Rowe Price, a major U.S. asset management firm, by investing indirectly in global funds managed by T. Rowe Price and domestic funds managed by Korea Investment Trust Management.

CEO Cho recalled, "When we first introduced the product in early 2017, there were no asset managers in Korea capable of managing TDFs independently, so collaborating with an experienced overseas business partner was crucial," adding, "We built a partnership over a long period and conducted extensive research before launching, so every step from the product launch to now remains memorable."

As he carefully managed the representative product of the sector he expects to grow the most, the results have been remarkable. According to fund rating agency FnGuide, Korea Investment Trust Management is the only domestic asset management company whose TDF average return exceeded double digits, recording 11.05% as of the 26th of last month. Expanding the period to the recent 1 and 2 years, the average returns were 14.01% and 27.36%, respectively, ranking first by a wide margin.

However, despite continuous market growth and Korea Investment Trust Management’s performance, the overall retirement pension market’s average return over the past five years is only 1.76%, which is considered a challenge to be addressed in the future. Regarding this, CEO Cho pointed out, "The focus on principal-guaranteed management has led to this outcome," but also said, "It is meaningless to blame anyone."

He emphasized the need for the willingness and consensus of all parties involved to actively improve this situation. He explained, "The parties involved include the political sphere and financial authorities who must introduce new systems, asset management companies, retirement pension providers, and all citizens enrolled in retirement pensions," adding, "Meaningful change can occur when efforts to introduce and improve systems, supply products suited to the system and market, and active investment learning and consideration by investors are combined."

Furthermore, he stressed that for the retirement pension market to expand and become more active than now, the introduction of a fund-type retirement pension system and expanded tax benefits are necessary. The fund-type retirement pension entrusts retirement pensions to a specialized trustee fund, which then selects professional asset managers to delegate management, differing structurally from the current system.

CEO Cho predicted, "If the fund-type retirement pension is introduced, significant changes are expected in the current retirement pension management method, which is heavily focused on principal-guaranteed products through retirement pension providers," adding, "Not only will there be a shift from principal-guaranteed to performance-based products, but investments will also be possible in more diverse portfolios including stocks, bonds, and alternative investments."

Biography of Cho Hong-rae, CEO of Korea Investment Trust Management

▲ Born in Seoul, 1961 ▲ Seoul National University, Department of Economics, 1983 ▲ Master’s in Economics, Yale University, USA, 1984 ▲ Completed PhD coursework in Economics, Yale University, USA, 1991 ▲ Head of Economic Research Division, Hyundai Research Institute, 1992 ▲ Head of Research Division, Dongwon Securities, 2002 ▲ Head of Research Division (Executive Director), Korea Investment & Securities, 2005 ▲ Head of Wholesale Division (Concurrent), Korea Investment & Securities, 2006 ▲ Head of Corporate Division (Concurrent), Korea Investment & Securities, 2007 ▲ Head of Global Research Office (Executive Director), Korea Investment Holdings, 2008 ▲ Head of Management Control Office 2 & Full-time Auditor (Concurrent), Korea Investment Holdings, 2011 ▲ Vice President & CEO, Korea Investment Trust Management, 2015 ▲ President & CEO, Korea Investment Trust Management, 2017

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