Default Option for Retirement Pension Introduced on July 12... 100% Contribution of Accumulated Funds Possible

[Asia Economy Reporter Lee Jung-yoon] The default investment system (default option), under which retirement pension funds are automatically invested in pre-agreed investment products by labor and management if the retirement pension subscriber does not give separate investment instructions for 4 weeks, will be introduced on July 12.

The Financial Services Commission announced on the 16th a revision of the retirement pension supervision regulations that sets the investment limit for default option products in retirement pension accounts at 100%.

The default option refers to a system in defined contribution (DC) type retirement pensions and individual retirement pensions (IRP) where, if the subscriber does not provide investment instructions, the retirement pension is managed according to a method pre-agreed by the company and the employee. This is an alternative to the difficulty of increasing long-term returns due to passive fund management practices caused by subscribers' lack of interest and time, which have been pointed out as problems in retirement pensions.

The revision allows the investment ratio of default option products to be increased up to 100%, like deposits or bond-type funds, enabling account management solely with default option products. Under current regulations, risky assets such as equity funds or mixed equity funds are limited to a maximum inclusion ratio of 70%, so fund-type products could not practically operate as default options.

Default option products will be presented as a small number of products agreed upon by employers and employees, selected from those evaluated for stability and other factors through a review by a committee under the Ministry of Employment and Labor and approved by the Minister of Employment and Labor.

The revision also includes adding deposits of securities finance companies as one of the principal-guaranteed products among the investment targets of retirement pension accounts.

The Financial Services Commission plans to form a joint task force (TF) with related agencies in the third quarter of this year to comprehensively review retirement pension operation regulations and consider regulatory improvements for efficient management.

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