259 Retirement Pension Default Option Products Approved... Supporting Successful Settlement

Lee Jung-sik, Minister of Employment and Labor / Photo by Hyunmin Kim kimhyun81@

Since its introduction in July, a total of 259 default option products under the Retirement Pension Pre-Designated Operation System have been approved.

On the 21st, the Ministry of Employment and Labor announced this at a meeting with retirement pension providers held at the Seoul Lotte Hotel, together with the Financial Services Commission and the Financial Supervisory Service, to ensure the on-site stabilization of the Pre-Designated Operation System.

The meeting was attended by Minister of Employment and Labor Lee Jeong-sik, Vice Chairman of the Financial Services Commission Kim So-young, Governor of the Financial Supervisory Service Lee Bok-hyun, as well as heads of banks, insurance, and securities companies including Lee Jae-geun, CEO of Kookmin Bank, Jin Ok-dong, CEO of Shinhan Bank, Jeon Young-mook, President of Samsung Life Insurance, and Choi Hyun-man, Chairman of Mirae Asset Securities.

The default option is a system where if a worker does not decide on the financial product to operate their retirement pension savings, the savings are automatically managed according to a pre-determined operation method.

In major advanced countries such as the United States, the United Kingdom, and Australia, the government recognizes it as a social responsibility to strengthen retirement income security by encouraging appropriate choices by subscribers, and has long introduced and operated default options in retirement pension systems. The average annual return rate reaches 6-8%.

Since the default option system was implemented on July 12, the government has been conducting reviews for product approval together with the Financial Supervisory Service. In two rounds of approvals held this year, 39 retirement pension providers applied for a total of 318 products.

As a result, in the first approval on October 1, 165 products were approved (55 disapproved), and in the second approval this month, 94 products were approved (4 disapproved). A total of 259 products were approved, recording an overall approval rate of 81%.

In the first review, most retirement pension providers applied for approval by lowering fund fees compared to before to ensure the successful establishment of the default option, and through the second review, even funds approved in the first round further reduced fees, resulting in a significant overall fee reduction.

A total of 59 products were disapproved, mainly due to poor past performance or excessive fees relative to performance. In particular, applications for funds from affiliated asset management companies were reviewed under stricter standards.

Minister Lee said on the day, "Product approval is the starting point for opening the door to the system, and how it operates on-site in the future will determine the success of the system's introduction," urging retirement pension providers to actively promote and provide stable services.

Vice Chairman Kim emphasized, "The Pre-Designated Operation System supports the retirement preparation of workers who are relatively passive in directly managing their retirement pensions through the capabilities of retirement pension providers," adding, "Competition among retirement pension providers should develop not as a short-term market preemption but as a sustainable form that delivers stable results in the mid to long term."

The government plans to operate a review committee on a regular basis until early next year to allow each retirement pension provider to manage up to 10 products.