Insurance Companies Face Crisis as Retirement Pension Withdrawals Drop by 1 Trillion Won in One Year (Comprehensive)

Poor Returns and IRP Switching Impact
Default Option Introduction Signals Major Changes

[Asia Economy Reporter Oh Hyung-gil] The insurance industry is experiencing a continuous outflow from retirement pensions. In the first quarter alone this year, retirement pension premium income decreased by nearly 1 trillion KRW compared to last year.

Despite last year's stock market boom, the low returns have accelerated the outflow of funds. Discussions on the introduction of the default option, also known as the pre-designated operation system for retirement pensions, have subsided but could resume at any time, increasing anxiety within the insurance industry.

According to the insurance industry on the 31st, the insurance companies' retirement pension premium income in the first quarter was 4.7211 trillion KRW, down about 983.7 billion KRW from 5.7048 trillion KRW in the same period last year. Life insurance companies recorded 2.82 trillion KRW, and non-life insurance companies 1.9 trillion KRW, decreasing by 10.0% and 26.0%, respectively.

Since most retirement pensions are accumulated at the end of December, the first quarter results are not absolute, but the downward trend continues this year following last year. Last year, life insurers collected 22.5528 trillion KRW in retirement pension premium income, a decrease of 2.0859 trillion KRW (8.5%) compared to the previous year. Non-life insurers recorded premium income of 16.1131 trillion KRW, an increase of 6.9%.

Insurance companies analyze that the outflow is occurring due to relatively low retirement pension returns despite last year's stock market boom.

According to the Financial Supervisory Service, among insurance companies in the first quarter, Kyobo Life's defined benefit (DB) plan had the highest return rate at 3.31%. Samsung Life (2.14%) and Mirae Asset Life (2.05%) also recorded returns in the 2% range.

On the other hand, most insurance companies such as KDB Life (0.86%), Samsung Fire & Marine Insurance (1.66%), Tongyang Life (1.74%), and DB Life (1.79%) showed poor returns in the 1% range.

The average return rate for insurance companies based on DB plans was 1.91%, higher than the bank return rate of 1.53% but lower than the securities firms' return rate of 2.84%. The low returns are attributed to the continued low interest rates and the high proportion of principal-guaranteed products included.

In addition to poor returns, the impact of switching individual retirement pensions (IRP) was significant. The securities industry effectively competed by eliminating IRP fees. Samsung Securities, Mirae Asset Securities, Shinhan Financial Investment, Korea Investment & Securities, Daishin Securities, and Yuanta Securities all removed IRP fees.

Although stock investments are not possible through IRP accounts, securities company IRP accounts allow investments in funds or ETFs. As a result, out of the total IRP accumulated funds of 38.3385 trillion KRW, only about 3 trillion KRW is accumulated with insurance companies.

Environment Minister Han Jeong-ae is attending the full meeting of the Environment and Labor Committee held at the National Assembly on the 20th, responding to questions from lawmakers. Photo by Yoon Dong-ju doso7@

There are concerns that another major shift may occur in the insurance retirement pension market depending on the results of discussions on the introduction of the default option currently underway at the National Assembly's Environment and Labor Committee.

The default option is a system where defined contribution (DC) retirement pension subscribers are automatically invested in pre-agreed qualified investment products if they do not provide separate operational instructions.

The ruling party has proposed operating the default option as a performance-based product to improve the low returns of retirement pensions. However, the insurance industry opposes this, arguing that principal loss is possible and that principal-guaranteed options should also be available.

On the 24th, the amendment to the Employee Retirement Benefit Security Act, which included the introduction of the retirement pension default option, was not discussed at the Environment and Labor Committee's Employment and Labor Law Review Subcommittee, making the passage of the bill in the standing committee during the first half of the year uncertain.

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