[Inside Chodong] National Pension Fund Committee Must Be Restructured Around Experts

[Asia Economy Reporter Park So-yeon] The National Pension Service, which is responsible for the retirement security of all our citizens, suffered a loss of 76 trillion won in the first half of this year alone. This is because the stocks held by the fund have recently fallen significantly. The rate of return is -8%. The decline in stocks is a global phenomenon, and most other countries' pension fund returns are also negative. Considering that during the same period, the Norwegian Government Pension Fund Global (GPFG) had a return of -14.4%, the Dutch public pension fund (ABP) -11.9%, the California Public Employees' Retirement System (CalPERS) -11.3%, and the Canada Pension Plan Investment Board (CPPIP) -7%, the National Pension Service can be considered to have performed relatively well.

This also indicates that overseas institutions have found it challenging to predict and respond to the financial environment following the COVID-19 pandemic. Fortunately, as of the end of August, stock market volatility has decreased, bond markets have shown a slowdown in interest rate increases, and the market appears more stable compared to the second quarter. The National Pension Service's rate of return has somewhat recovered to about -4% (provisional). Even pension funds staffed with top experts cannot outperform the market. However, they cannot just be passive victims either. They must find a way. This could involve creating a system that enables pension fund management institutions to accurately predict changes in the investment environment and respond in a timely manner. This means that the National Pension Service Fund Management Headquarters needs to realize the plans that have so far only been talked about to overcome the current crisis. The keywords are independence and expertise.

Looking at the composition of the National Pension Fund Management Committee, the final decision-making body that determines where to invest the pension premiums collected from the public, the Minister of Health and Welfare, appointed by the President, serves as the chairperson. Four vice ministers from major government ministries and the President of the National Pension Service also participate. Additionally, representatives of employers, workers, and regional subscribers are involved. Although it is structured as a social consensus body, it is a structure that cannot secure independence from political power and capital nor ensure operational expertise.

A representative example of the infringement on the independence of the National Pension Fund management is the controversy over reducing the proportion of domestic stocks. The National Pension Service plans to reduce the proportion of domestic stocks in the long term, but there is ongoing pressure to support the domestic stock market. Since this issue faces opposition from labor, management, and government, it is difficult for the Fund Management Committee members to make decisions. In the first half of this year, domestic stocks in the National Pension Fund portfolio suffered the largest loss at -19.58%. It is important not only to adjust the proportion of domestic stocks but also to compose an optimal portfolio that can increase overall fund returns and respond promptly. However, in the current state, it is far from professional, and there are many helmsmen representing the interests of each group. Efficient decision-making, free from vested interests, is difficult.

One proposed solution to this problem is to make the Fund Management Headquarters independent as a public corporation or government enterprise. To improve the efficiency and independence of fund management, the best approach is to reorganize the governance structure into a group of private experts, and accordingly, the subordinate execution organization should also be independent. The government first proposed establishing a Fund Management Corporation in 2004, and in 2007, the Ministry of Health and Welfare also presented a plan to reform the fund management system. Both plans centered on establishing a Fund Management Corporation, making the Fund Management Committee a private independent permanent institution, and changing the chairperson of the Fund Management Committee from the Minister of Health and Welfare to a private chairperson as part of governance reform.

As fundamental changes in the financial environment occur and concerns grow that fund returns may deteriorate over the long term, these arguments are gaining momentum again. Although they have been overshadowed by various issues such as the relocation of the fund headquarters, now, as comprehensive pension reform is being planned, is the opportunity to change the governance of the National Pension Fund Management Headquarters. If we wish for the well-being of the fund that protects the retirement of the people, we should not just lament the unchangeable market and its outcomes but focus on what can be changed. We must devote all efforts to the political independence of fund management, the substantial improvement of the treatment of fund managers, and securing expertise.