[Exclusive] 'Up to 80% Overseas Investment'... Canadian Model 'Rising' in Strengthening National Pension Fund Returns

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A model benchmarking the Canadian pension fund is being considered as a measure to increase the National Pension Service's (NPS) rate of return. The plan is to adopt the Canadian-style investment strategy that significantly increases overseas investments up to 80%, while reorganizing the decision-making system to practically strengthen expertise.

According to government departments on the 24th, the Ministry of Health and Welfare is preparing a comprehensive plan to improve the NPS's rate of return. This is a follow-up measure after President Yoon Seok-yeol presided over a chief secretary meeting in March and instructed his aides to "prepare extraordinary measures to increase the National Pension Fund's investment returns." So far, discussions have strongly considered benchmarking the Canadian pension fund's investment strategy and decision-making methods.

First, an investment strategy that significantly expands the proportion of overseas investments will be introduced to increase returns. Canada operates a diversified portfolio worldwide through the Canada Pension Plan Investment Board (CPPIB), established in 1997 by separating the fund management organization from the pension headquarters, staffed by 12 private investment experts. The CPPIB law states that the investment scope is not limited to provincial government securities. As of last year, 84% of total assets were invested overseas. In contrast, South Korea's overseas investment ratio is only 44%, and the plan is to rebuild the investment portfolio by significantly increasing this ratio.

Additionally, a plan for key operation personnel responsible for overseas investments to be based in Seoul is under consideration. The idea is to have alternative investment staff work full-time at the National Pension Smart Work Center in Gangnam-gu, scheduled to open in July. The Smart Work Center is designed as a space mainly used by operation staff during business trips to Seoul, and the plan is to allow them to work there without returning to the headquarters in Jeonju. According to Article 27 of the National Pension Act, the department overseen by the fund director is located in Jeollabuk-do. However, Jeonju City is concerned about the phased relocation plan for operation staff to the Smart Work Center, making discussions challenging.

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A structural reform to strengthen the expertise of decision-making is also being cautiously discussed. The lack of expertise in the composition of the Fund Management Committee, which decides the NPS's investment policies, has been a chronic issue. The committee consists of 20 members, including government representatives such as the Minister of Health and Welfare and the NPS chairman, as well as representatives from civic groups, labor unions (Korean Confederation of Trade Unions and Federation of Korean Trade Unions), and employers.

A government official said, "The Canadian pension headquarters is composed only of 12 experts," adding, "In South Korea, amid doubts about the committee's expertise, we are considering reducing the number of the 20 members and composing it only of practical experts." The Canadian Pension Plan Investment Board (CPPIB) forms its board with investment experts who have diverse experience worldwide to make investment decisions. However, the Ministry of Health and Welfare stated, "The management committee should value not only expertise but also representation," and added, "Excluding labor union representatives from the Fund Management Committee would require an amendment to the National Pension Act itself, and such discussions have not taken place."

The comprehensive plan to improve the National Pension Service's rate of return is expected to be announced around May after collecting expert opinions and government-party consultations. Lee Seuran, director of the Pension Policy Bureau at the Ministry of Health and Welfare, said at the announcement of the '5th National Pension Financial Projection' last month, "A task force (TF) composed of private investment experts is preparing measures to increase the fund's investment returns," and "It will be announced as early as April."

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