[Exclusive] National Pension Fund Management Committee to Be Filled with Experts... Law Amendment Underway

October National Pension Comprehensive Operation Plan Announcement
Participating Members Point Out Lack of 'Expertise' Issue

The government has begun efforts to fill the National Pension Fund Management Committee with experts. This move comes in response to ongoing criticism that the Fund Management Committee, the highest decision-making body responsible for determining how to manage the pension premiums paid by the public, has been staffed with civil servants and labor representatives lacking sufficient expertise. It is reported that the government is discussing detailed measures, including adding qualification requirements for fund management committee members through amendments to the National Pension Act.

On the 10th, related ministries such as the Ministry of Economy and Finance and the Ministry of Health and Welfare confirmed that they are currently discussing including such measures in the comprehensive National Pension Operation Plan to be announced as part of pension reform in October. A government official stated, “We are working to increase the number of experts participating in the Fund Management Committee and to impose certain qualification requirements, thereby changing the governance structure. To do this, amendments to the National Pension Act are necessary, and we are discussing related details.”

The Fund Management Committee, the highest decision-making body for managing the National Pension Fund, decides on major policies such as investment policies and asset allocation ratios. According to the National Pension Act, the chairperson is the Minister of Health and Welfare. Additionally, four vice ministers from the Ministry of Economy and Finance, Ministry of Trade, Industry and Energy, Ministry of Employment and Labor, and Ministry of Agriculture, Food and Rural Affairs, along with the Chairman of the National Pension Service, participate as ex officio members, making a total of six government members. Besides these, there are three employer representatives, three worker representatives, six regional subscriber representatives, and two related experts serving as committee members.

Lack of Expertise Despite Managing About 1,000 Trillion KRW

As of April, the National Pension Fund size reached 975.583 trillion KRW, making high expertise essential. However, there have been continuous criticisms regarding the lack of fund management expertise among participating members. Issues have been raised about many government members, including vice ministers participating as government representatives, lacking actual experience in fund investment and management, as well as low attendance rates at committee meetings.

The government is understood to be considering utilizing a pending amendment to the National Pension Act in the National Assembly rather than preparing a new bill. According to the amendment proposed in March by Hong Seong-guk, a member of the Democratic Party of Korea, the qualification requirements for fund management committee members would be defined as persons who have worked for ‘10 years or more’ in fields directly related to fund management such as finance or asset management, and the number of related experts on the committee would be increased from two to four. Under the current law, it is possible to participate as a committee member without practical fund management experience, and this structure has raised concerns that members without special professional investment experience are making decisions on the committee.

It is also reported that adjustments to the number of committee members, including a reduction in regional subscriber representatives (six members), are being discussed. A related official involved in pension reform discussions said, “There has been discussion about the lack of expertise in the current fund committee system, which is composed mainly based on ‘representation’ of the government, regional subscribers, and workers,” adding, “Even if the number of members is reduced, the content will include ensuring that the committee is composed of actual experts.” A government official hinted, “We are not making any specific conclusions yet, but we believe it is necessary to review all issues, including the long-standing concerns about labor union representation.”

In fact, major overseas pension funds have governance structures that prioritize expertise. The Canada Pension Plan Investment Board (CPPIB), the highest decision-making body of the Canada Pension Plan (CPP), is composed solely of investment experts with diverse experience from around the world who make investment decisions. The board of the central bank, which is responsible for decision-making of Norway’s Government Pension Fund Global (GPFG), is also composed entirely of financial experts.

Concerns about the structure of the Fund Management Committee have been continuously raised within the government as well. In the 2021 Fund Management Evaluation Report, the Ministry of Economy and Finance pointed out, “Among the 20 committee members, five are vice ministers, and the Chairman of the National Pension Service participates ex officio,” adding, “There are ambiguous aspects regarding the scope of authority and responsibility among the Ministry of Health and Welfare, the committee, and the National Pension Service in the fund management decision-making process, including the scope of delegated duties.” The 2022 Fund Management Evaluation Report also raised the issue of labor union representation. The report stated, “It is time to discuss qualitative changes in fund management,” and criticized, “Although the labor union membership rate is only 14%, worker representatives are composed solely of union-centered members, which means the opinions of future generations are not fairly reflected.”