[2020 National Audit] Concentrating Retirement Pensions and Bundling Sales... Prevalence of Irregular Business Practices

Analysis of Democratic Party Lawmaker Yoon Kwan-seok
"Settling for Reality... Special Measures Needed"

[Asia Economy Reporter Kim Hyo-jin] It has been identified that irregular sales practices are rampant, such as large conglomerate affiliates funneling retirement pension management to financial companies within their groups, and banks bundling retirement pension products with their client transactions. Improving returns is secondary, with the focus solely on attracting subscribers. Critics point out that the original purpose of introducing retirement pensions?to support workers' stable post-retirement lives?is being undermined.

According to data submitted by the Financial Supervisory Service to Yoon Kwan-seok, chairman of the National Assembly's Political Affairs Committee and a member of the Democratic Party of Korea, on the 21st, the proportion of retirement pension management by Hyundai Motor Securities and Samsung Life Insurance, financial companies affiliated with major conglomerate groups, exceeded 50% within the same group.

Hyundai Motor Securities and Samsung Life Insurance had 87.5% and 61.7%, respectively, of their defined benefit (DB) type reserves?which pre-determine pension benefit amounts regardless of returns?coming from affiliated company subscriptions. The proportion of affiliated company subscriptions in the defined contribution (DC) type was 49.5% and 12.9%, respectively. This means that half of the retirement pension subscription amounts managed by financial companies affiliated with large conglomerates come from employees within the group.

Conversely, individual retirement pensions (IRP), which employees select and subscribe to separately, showed no subscription performance, presenting a stark contrast. The domestic retirement pension management market typically yields annual and long-term returns of only 1-3%, leading to ongoing criticism that it falls short of expectations.

Provided by the office of Assemblyman Yoon Kwan-seok

In the case of banks, although their returns are generally lower than those of securities companies or insurance companies, their market share has consistently remained in the 50% range. This indicates that bundling sales relying on corporate loan networks is widespread rather than product competitiveness. The fact that more than half of the companies entrusting retirement pension management to commercial banks have loans supports this criticism.

Among companies that entrusted retirement pension management to six banks?including the four major commercial banks (Woori, Shinhan, Hana, KB Kookmin) and two policy banks (IBK Industrial Bank, KDB Industrial Bank)?50.2% had loans with these banks. The proportion was particularly high for policy banks such as IBK Industrial Bank (66.9%) and KDB Industrial Bank (71.5%).

The Financial Supervisory Service recommended in 2015, through an industry self-regulation agreement, that retirement pension affiliate funneling be kept below 50%, but this has proven largely ineffective. The banks' practice of bundling sales is not subject to sanctions under banking supervision regulations, so unless innovations such as return rate competition occur in the market, there are no significant countermeasures, according to Representative Yoon.

Representative Yoon criticized, "Private retirement pension managers are complacent with the reality of the retirement pension market, where once subscribers are signed up, they are like fish trapped in a pond, focusing only on irregular subscription recruitment and showing no results in competing to improve returns."

He added, "As the public's interest and knowledge in financial investment increase, the financial authorities should also pay attention to and devise special measures for innovation in the retirement pension market, which is directly linked to securing funds for retirement."