Retirement Pension Nears 300 Trillion Won but Low Returns
Already Operated in US, UK... Returns 6-8%
Minister Lee Jeong-sik "Enhance Returns by Settling in the Field"
The 'Default Option for Retirement Pension Operation' system, which automatically invests accumulated funds into pre-selected products if retirement pension subscribers do not provide separate operation instructions, will be introduced on the 12th.
On the 5th, the Ministry of Employment and Labor announced that the Enforcement Decree of the "Employee Retirement Benefit Security Act," which stipulates the main contents of the default option, was approved at the Cabinet meeting. Since the amendment passed the National Assembly in December last year, the Ministry has been preparing for the system's implementation by establishing subordinate laws and detailed implementation plans.
Accordingly, from the 12th, the default option will be officially introduced into the Defined Contribution Retirement Pension System (DC system) and the Individual Retirement Pension System (IRP system).
Countries with extensive retirement pension operation experience such as the United States, the United Kingdom, and Australia have long introduced and operated default options in retirement pensions under the recognition that strengthening old-age income security is a social responsibility of the government. The average annual return rate is around 6-8%.
In Korea, as of the end of last year, retirement pension reserves amounted to 295.6 trillion won, approaching 300 trillion won, but due to a lack of active management, the return rate is only about 1-2%. The government expects that the introduction of the default option will increase returns and strengthen workers' preparation for old age.
The Ministry of Employment and Labor has specified detailed contents such as approval requirements, product selection, application, and management of the default option through the enforcement decree.
First, retirement pension providers must prepare default options to present to employers and subscribers, undergo review by a committee under the Ministry of Employment and Labor, and obtain approval from the Minister of Employment and Labor.
The review committee is chaired by the Vice Minister of Employment and Labor and is composed mainly of retirement pension experts with expertise. Only high-quality products that can generate stable returns while effectively managing risks will be approved. Types of products eligible for approval include principal-guaranteed products, fund products allowed under the law, and portfolio-type products.
The government plans to promptly conduct review and approval procedures by receiving applications from retirement pension providers after the system's implementation, and expects that approved products will be publicly announced through the first review committee by October.
Retirement pension providers must present key information about the approved default options to employers, who then select from the presented methods and reflect them in the retirement pension regulations. Workers receive key information about the products reflected in the regulations from the providers and select their own default option among them.
The default option applies when workers newly subscribe or when existing products mature but no operation instructions are given, or when they wish to immediately operate their accumulated funds with the default option (OPT-IN).
The government plans to focus its capabilities on monitoring and managing products, including conducting regular evaluations of the default option at least once every three years to review whether approval should be maintained.
Lee Jung-sik, Minister of Employment and Labor, said, "So far, the retirement pension system has not served as a reliable support for workers' old-age preparation due to issues such as low returns," adding, "We will actively strive to quickly establish the default option in the field to not only improve returns but also ensure that the retirement pension system becomes a trustworthy and reliable system for workers."
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