Korean pension subscribers show ultra-low risk tolerance
Han-Gyeol Seon
4 HOURS AGO
South Korean pension plan subscribers prefer to protect their money rather than taking risks for capital gains despite the government effort to encourage them to seek out various investments for higher returns, data showed on Tuesday.
Principal-guaranteed products have made up the lion's share of 90% of 32.9 trillion won ($2.4 billion) of retirement pensions managed under the default option in South Korea as of the end of June, according to the Ministry of Employment and Labor and the Financial Supervisory Service (FSS).
Compared with the first quarter of this year, the cumulative amount of default option retirement pensions increased about 7 trillion won, with the subscriber numbers added by about 380,000 to 5.65 million.
For the pension plan, an employer contributes retirement allowances to an outside financial institution for a worker’s future benefit.
South Korea introduced the default option for retirement pension management in July 2023. Under the system, outside financial institutions manage the contributions according to the degree of risk tolerance that its subscriber has said is willing to endure, unless they give specific instructions on the type of investments.
It applies to defined contribution and individual retirement pension plans, not to the defined benefit type.
(Courtesy of Getty Image) Kookmin Bank is the largest retirement pension manager in South Korea, managing 6.08 trillion won under the default option, followed by Shinhan Bank and the Industrial Bank of Korea with 5.83 trillion won and 4.88 trillion won, respectively.
RETURNS
Financial products in the highest-risk category accounted for 1.5% of the default option pension contributions, yielding a 16.55% return over the past year.
That compared with the annualized 3.47% return from ultra-low risk products and the average of 10.82% generated from the products, in which default option pension plans have invested as of the end of June.
The labor ministry and the FSS rated risk tolerance into four categories: ultra-low, low, medium and high risk.
They said in a joint statement that they will post returns on financial products held by default option pension plans on a quarterly basis so that their subscribers would compare theim and diversify portfolio beyond principal-guaranteed products.