I Only Consider Retirement at Jicheonmyeong

2025~2030 TDF Asset Under Management Share Increases
Higher Returns Expected in 2050~2055
Institutional Support Needed to Promote TDF

[Asia Economy Reporter Hwang Junho] Among target date funds (TDFs), which are personal pensions for retirement funds, the TDFs in the "Jicheonmyeong" (age 50) category attracted the most funds. Assuming the retirement age is 60, this means that most people are preparing for retirement funds with a retirement horizon of 5 to 10 years. Age 50 is said to be the age of realizing the mandate of heaven (Jicheonmyeong), but in reality, people are only now hastily starting to prepare for retirement. The industry pointed out the need for institutional improvements to bring forward the retirement preparation period.

High Proportion of Jicheonmyeong-type TDFs

According to the Korea Financial Investment Association on the 23rd, among TDF products last year, the proportion of assets under management for TDFs targeting retirement in 5 to 10 years (2025?2030) was 45.4%. Out of a total AUM of 5.2 trillion KRW, 2.16 trillion KRW was concentrated in this category. The AUM for products targeting retirement in 5 years accounted for 1.34 trillion KRW, or 28.2% of the total. Products targeting retirement in 10 years attracted 17.2% of the funds.

TDFs are literally funds managed with a set retirement date, with the expected retirement year (2015?2055) attached to the fund name in 5-year increments, similar to a wine vintage.

The proportion of assets invested in products targeting retirement 15 to 20 years ahead was only 22.7%. Those targeting 25 to 30 years ahead accounted for about 20.7%, and those targeting more than 30 years ahead were only 0.5%.

However, in terms of returns, the farther the retirement date, the better. This is due to the compounding effect. Especially last year, the stock market boom also contributed. TDFs allocate a higher proportion of investments to risky assets such as stocks the farther the retirement date is. The average return of Jicheonmyeong-type TDFs over the past year, as of this date, was about 5.63%, which is higher than that of savings deposits.

Need for TDF Promotion Measures

The industry points out the need for institutional support to prepare early for super-aging and income cliffs. This includes measures to increase the utilization of TDFs in retirement pensions, as seen in the US and Australia.

For example, if TDFs are introduced as the default option in DC-type retirement pensions (pre-designated management system), subscribers can manage their retirement pensions with various product types, including TDFs and performance-based products, if they wish. Also, if the discretionary investment system for DB-type retirement pensions is introduced, it would be possible to leverage the expertise of external managers to improve pension returns.

Oh Mooyoung, Head of Industry Strategy at the Korea Financial Investment Association, said, "TDF is a proven management method that allows general investors to enjoy the performance of global capital markets," adding, "If TDFs are used as a long-term, diversified investment tool from a life-cycle perspective, it will greatly help in securing stable retirement funds."

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