[In-Depth Look] National Pension, A Ship Sailing Astray

Jung Woo-yong, Vice Chairman of Policy, Korea Listed Companies Association

If you ask the public the reason for the existence of the National Pension Service (NPS), a common-sense answer would be that it manages the public’s retirement funds to grow and return them at the time of retirement. But is the current National Pension truly meeting the public’s expectations as a social insurance system that promotes the stability of retirees’ lives and welfare?

According to recent reports by the National Assembly Budget Office and the Korea Economic Research Institute, the reserve fund is projected to run a deficit by 2039 and be depleted by 2055. This is two years earlier than the 2018 forecast, raising concerns about the management of the National Pension.

Last October, the National Pension Service submitted a “Survey Report on the Review of Adjusting the Upper and Lower Limits of the National Pension Standard Monthly Income” to Assemblyman Heo Jong-sik of the Health and Welfare Committee. The report showed that only 31.1% responded positively to the question, “Do you trust the National Pension system?” Moreover, the 2030 generation expressed significant doubts about whether they would be able to receive National Pension benefits in their retirement. In a situation where aging is the fastest in the world and birth rates are at their lowest, the most urgent task is to strengthen the fund, which is the essence of the National Pension.

The National Pension invests about 20% of its fund in domestic stocks and holds more than 5% stakes in over 270 companies, giving it significant influence over corporate management. Unlike foreign pension funds that have very low domestic investment ratios or set investment limits, the National Pension exerts substantial influence on domestic companies. However, the Fund Management Committee, which decides major policies for the National Pension’s operation, includes many government officials. This is cited as a reason why the National Pension is swayed depending on the ruling party. It is also why the National Pension is criticized for lacking independence compared to overseas pension funds that are operated by separate independent organizations or outsourced to external managers.

Canada’s National Pension Plan (CPP), which achieved a return rate exceeding 20% in 2020, is managed by a pension board composed solely of private experts. This governance structure, which prevents political interference and focuses on improving returns, is considered a key factor behind its high performance. Japan and Norway also entrust management to independent experts free from political interests to boost returns.

Recently, the National Pension has stirred controversy by announcing plans to file derivative lawsuits against executives who caused losses to companies. While the rationale of fulfilling fiduciary duties under the Stewardship Code sounds plausible, even if they win after investing huge resources, there is no benefit returned to the National Pension or pension recipients. On the other hand, companies suffer image damage and lose market trust regardless of the lawsuit outcome, causing stock prices to fall. Being embroiled in lawsuits is effectively the National Pension “cutting its own flesh” and will not help investment returns.

Is pressuring companies under the seemingly reasonable pretexts of enhancing long-term shareholder value and fulfilling fiduciary duties truly aligned with the National Pension’s core mission of managing public retirement funds to generate returns? Under the current circumstances, public anxiety is growing amid predictions that those born in the 1990s may not receive National Pension benefits. It is time for the National Pension to focus on its fundamental duty of managing the public’s retirement funds faithfully, restoring public trust, and improving returns. Above all, securing the independence of the National Pension must be prioritized to stop it from going off course.