[Wake Up Retirement Pensions]② Mandatory Default Options in the Second Half... Disclosure of Performance Reports

Default Option Approved Portfolio Return Rankings Revealed
Considering Physical Transfer Methods for Pension Products... No Need to Cancel

#1. Office worker A taps on the retirement pay calculator again today. After entering the date of joining, expected retirement date, total salary for three months, annual bonus total, and annual leave allowance, the result shows a surprisingly large sum. The retirement pay, which accumulates steadily every year, raises the question of how to actively grow this idle money.

#2. Recently, B, who changed jobs, has been managing the retirement pay received from the previous employer by depositing it into an Individual Retirement Pension account (IRP) and managing it personally. Following advice from acquaintances, B invested in funds related to promising industries, but watching the fluctuating returns brings anxiety about whether a comfortable retirement is achievable.

Second Half Retirement Pay Management Report Card Released, Free Real Asset Transfers Possible

From the second half of this year, financial companies' retirement pension management performance reports will be disclosed. For investors, this provides a more transparent view of retirement pension management and an opportunity for active management.

The financial authorities plan to publish the performance rankings of portfolios approved by the government under the default option (pre-designated management system). Since the default option became mandatory from July this year, this aims to allow retirement pension subscribers to directly compare returns and choose products accordingly.

Disclosure of returns for performance-based products included in default option portfolios is also under review. Currently, only the returns of principal-guaranteed products are disclosed on the Integrated Pension Portal, but the scope of comparative disclosure will be expanded.

The government and financial industry are also considering measures for real asset transfers of pension products. Simply put, if a retirement pension is entrusted to Bank A but the returns are unsatisfactory, subscribers will be able to transfer their subscribed products to Securities Company B without canceling the subscription. Until now, when switching retirement pension accounts, subscribers had to sell the held products. Even if returns were poor, subscribers had to either stay or accept losses to move.

In the future, transfers without cancellation will be possible, and changing providers remotely without visiting will be improved. Na Seok-jin, Head of the Industrial Market Division at the Korea Financial Investment Association, said, "If subscribers can compare disclosed returns and freely transfer, competition among financial companies will intensify, which is advantageous for financial consumers."

From Understanding Retirement Pension Types... A New Opportunity for Management

To wisely grow your retirement pension, you first need to know what type your pension is. The retirement pension system can be divided into defined benefit (DB) pensions, where the employer manages the accumulated funds, and defined contribution (DC) pensions, where the employee manages the accumulated funds directly.

In the case of DB pensions, the employer must deposit the accumulated funds with an external financial company and pays the employee a fixed amount (average wage for 30 days × years of service) regardless of investment gains or losses.

DC pensions are retirement pension systems where the employer deposits at least one-twelfth of the total annual wage into the employee's retirement pension account each year, and the employee manages the accumulated funds directly. The retirement benefit amount varies depending on the investment results.

The Individual Retirement Pension account (IRP) allows continued management of retirement benefits received from the retirement benefit system even after retirement. Individuals can additionally subscribe to an IRP even if they are enrolled in a company retirement pension. IRPs can be opened at desired financial institutions such as banks, insurance companies, or securities firms.

If you want to know what type your retirement pension is and how much is accumulated, you can check comprehensively on the Integrated Pension Portal, which includes personal pensions and national pensions. Through integrated inquiry, you can confirm the types of DB, DC, IRP, and other retirement pensions you are subscribed to. You can also check individually at the financial company where your pension is subscribed.

You can invest the money accumulated in your retirement pension account in various financial products. The Ministry of Employment and Labor has reviewed and announced about 259 default option applicable products categorized by risk level. These include target date funds (TDF), balanced funds, short-term financial funds, social overhead capital (SOC) funds, and principal-guaranteed products.

TDFs are asset allocation funds that set an investment target date and gradually increase the proportion of lower-risk assets over time. Balanced funds diversify investments across assets with different risk levels and periodically adjust asset allocation considering market conditions and asset value fluctuations.

Short-term financial funds invest in short-term financial products to reduce risk and pursue stable returns. SOC funds invest in social infrastructure projects promoted by national or local governments. Principal-guaranteed products include savings and deposits.

When choosing fund products, it is important to carefully examine the risk rating and past returns. When selecting principal-guaranteed products, consider interest rate levels, maturity dates, and depositor protection. Since interest rates change monthly, the rate at default option setting may differ from the actual applied rate.

The proportion of performance-based products with loss risk is increasing every year. In 2021, it rose to 13.6%. Due to growing anxiety about retirement, individuals paying attention to retirement pension returns are moving toward higher-yielding funds and other performance-based products. Most retirement pension funds had been left with low returns of 1-2% annually, which is below the nominal wage growth rate of around 4%.

For existing retirement pension subscribers, the grace period for default option selection ends this July. Employees already enrolled in retirement pensions can check which financial products their pensions are currently invested in and consider management methods.

Subscribers who previously deposited their retirement pensions in fixed deposits or similar products should check maturity and management methods. Even if the default option has been applied, switching to other financial products is possible. (Until real asset transfers become available,) this can be done by selling the current product and purchasing another. Even those not subject to the default option can choose and subscribe to one of the default options if desired. Son Su-jin, Head of Marketing at Mirae Asset Global Investments, said, "For retirement pensions to truly become stable retirement funds, it is most important not to withdraw lump sums," and added, "Policies that provide tax benefits when employees make additional contributions to defined contribution (DC) or IRP accounts are needed."

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