[Wake Up Your Retirement Pension] ① "Focus on Asset Allocation Didimdol Fund"

Need for Diversified Investment Across Stocks, Bonds, and Alternative Assets
Seo Yuseok, Chairman of the Korea Financial Investment Association, Says "Pension Additional Payment Limits and Separate Taxation Limits at Pension Receipt Should Be Expanded"

"Wake up your sleeping retirement pension and invest in the 'Didimdol Fund.'

On the 1st, Seo Yoo-seok, Chairman of the Korea Financial Investment Association, emphasized that "principal-guaranteed products have limitations in asset formation for a prolonged retirement" and that the 'Didimdol Fund,' an asset allocation fund well diversified across stocks, bonds, and alternative assets, can be an alternative.

With low birth rates and aging making it impossible to guarantee citizens' retirement security with the National Pension alone, expectations for the role of retirement pensions are growing. Chairman Seo stated that as a way to actively grow retirement pension reserves for use as retirement funds, "a fund that functions as a stepping stone, allowing safe transfer of retirement pension reserves previously held in banks and insurance companies, is necessary." He added, "With the Didimdol Fund, it is essential to secure a stable long-term return as a baseline, and if additional returns are desired, some funds should be managed in risk assets, such as equity funds or exchange-traded funds (ETFs)."

Seo Yuseok, Chairman of the Korea Financial Investment Association
[Photo by Korea Financial Investment Association]

Simply put, just as the National Pension Fund aims for asset growth through long-term investment with asset allocation in stocks, bonds, and alternative investments, achieving a 4-5% return, retirement pensions should also aim for asset growth through long-term investment.

Currently, money accumulated in retirement pension accounts can be invested in various financial products, including target-date funds (TDF), balanced funds, short-term financial funds, social overhead capital (SOC) funds, and principal-guaranteed products. Chairman Seo expressed confidence that if an asset allocation-type Didimdol Fund is added to the existing product groups used for retirement pension investment, the returns and stability of retirement pensions will improve further. He lamented that the fundamental reason for the low returns on retirement pension reserves is the failure to establish a reasonable investment portfolio suitable for long-term investment.

Rapid Growth of Retirement Pension Market... Returns Remain Low

According to Korea Investment Trust Management, the retirement pension market, which stood at 336 trillion won at the end of last year, is expected to grow to 557 trillion won by the end of 2027 and 860 trillion won by the end of 2032.

Contrary to the rapid growth of the pension market, the average annual return on retirement pensions remains around 2%. According to statistics on the operation status of retirement pension reserves, the operating returns were 2.25% in 2019, 2.58% in 2020, and 2% in 2021. Returns on principal-guaranteed products were even lower, recording 2.77%, 1.68%, and 1.35% during the same period. Meanwhile, performance-based products recorded higher returns of 6.38%, 10.67%, and 6.42%, respectively.

Looking at the 10-year long-term returns by management method, principal-guaranteed products yielded 2.19%, while performance-based products yielded 4.09%, showing about a twofold difference.

The problem is that about 90% of retirement pension reserves are still left in principal-guaranteed products such as deposits and savings. According to the latest statistics on retirement pension reserve management published annually by the Ministry of Employment and Labor and the Financial Supervisory Service, as of the end of 2021, the reserves amounted to 295.6 trillion won, with principal-guaranteed products (including standby funds) accounting for 255.4 trillion won (86.4%) and performance-based products accounting for 40.2 trillion won (13.6%).

Considering the compound interest effect of long-term investment, a 1% difference in returns can lead to a significant difference in the total amount of retirement pension. Assuming a monthly contribution of 200,000 won, a 4% return over 20 years results in 74 million won, a 5% return results in 83 million won, and a 6% return results in 93 million won.

Chairman Seo Yoo-seok reiterated, "Currently, retirement pensions distinguish between principal-guaranteed and performance-based products, which may lead investors to perceive performance-based products as risky. This distinction should be removed, and various products suitable for retirement pensions should be designed so that consumers can choose."

He also suggested, "The additional annual pension contribution limit, currently 18 million won, should be significantly expanded," adding, "To secure sufficient pension assets, more money should be concentrated into pensions during the contribution phase."

Above all, he emphasized the need for detailed policy support that encourages sufficient pension receipt through tax benefits. Chairman Seo stressed, "Regarding individual retirement pensions (IRP) that occur during job changes, if maintained until age 55, retirement income tax should be reduced to prevent losses in the middle, and the separate taxation limit for pension receipt after retirement should be significantly raised from the current 12 million won to provide differentiated incentives for pension receipt."

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