SME 'Fund-type Pension' Establishment First Meeting... Fund Size Likely to Depend on Corporate Participation Rate

Chairperson of the Mid-term Retirement Pension Fund System Operations Committee is Director Kang Soon-hee Geunbok
Composed of a total of 14 members including 7 expert committee members
Initially operated as OCIO

[Asia Economy Reporter Hwang Yoon-joo] The Small and Medium Enterprise (SME) Retirement Pension Fund System Operation Committee, which will manage the retirement funds of workers in SMEs with fewer than 30 employees introduced from the 14th, has taken its first step.

According to the industry, the Korea Workers' Compensation and Welfare Service (COMWEL) Retirement Pension Fund System Operation Committee held its first meeting in the afternoon and decided on the fund operation policy.

The chairperson of the Retirement Pension Fund System Operation Committee is Kang Soon-hee, the director of COMWEL, in accordance with relevant laws. The committee consists of 14 members in total, including the Employment and Labor Ministry’s Labor Standards Policy Officer, COMWEL directors, two employer representatives, two worker representatives, and seven expert members.

Since this is the first time operating a retirement pension fund, it was decided to initially utilize an Outsourced Chief Investment Officer (OCIO). At the meeting, details such as whether to select a single management institution, fees, and the bank responsible for pension payments were finalized. Generally, the fund system operation committee selects one asset management company and one securities company to operate the fund. Since the fund size is expected to be small in the early stages of the system, there is also a possibility of selecting a single institution.

The fund system operation committee will announce the selection of the OCIO management company through the Public Procurement Service by the end of this month based on details such as fees. After selecting the main bank, recruitment of SME workplaces to join the retirement pension fund is expected to begin as early as July.

COMWEL started the SME retirement pension project in December 2010. However, the adoption rate of retirement pensions in SMEs was only 24% as of 2020, far below the 91% adoption rate in companies with 300 or more employees. With the implementation of this retirement pension fund system, SME workers will also be able to receive their retirement pay in the form of a pension. The government plans to support 10% of the employer’s contribution for low-income workers earning less than 2.3 million KRW per month to encourage SME participation in the retirement pension fund system.

However, concerns remain. Currently, COMWEL’s SME retirement pension reserves are known to be about 4 trillion KRW. The Retirement Pension Fund System Operation Committee plans to form a new investment pool instead of using the existing pension reserves. The size of the fund may vary depending on the number of SMEs applying for the retirement pension fund system in the second half of the year. If SME participation is low, it means the ‘economies of scale’ advantage of the retirement pension fund system cannot be realized.