[Why&Next] Retirement Pensions 'Surge to 90 Trillion' Driven by 'Securities'... Intense Competition in Yield Rates

Securities Firms' Retirement Pension Reserves Surpass 90 Trillion Won
Mirae Asset Securities Leads, Fierce Market Share Competition Among Firms
Competitiveness for Enhancing Performance Differentiated by RA

The scale of retirement pension reserves managed by securities firms is rapidly growing, making the retirement pension money move a reality. This is because the demand for retirement pension management is shifting from 'stability' to 'profitability.' The securities industry is strengthening its business capabilities related to retirement pensions to seize the market and is attempting qualitative growth in retirement pension management through the introduction of robo-advisors (RA).

[Image source=Getty Images]

Importance of Pension 'Returns' Increases... "Market Will Grow Larger"

According to the Financial Supervisory Service's Integrated Pension Portal as of the end of Q1 this year, the retirement pension reserves of securities firms amounted to 90.7041 trillion KRW. This represents an approximately 18.0% increase compared to the same period last year (76.8838 trillion KRW). Although the absolute scale is smaller than that of banks (202.3522 trillion KRW) during the same period, the growth rate is the fastest compared to banks (15.7%) and insurance (7.1%). As a result, the proportion of securities firms in the total financial sector's retirement pension reserves increased from 22.7% to 23.5%.

Looking at market share among securities firms, Mirae Asset Securities leads with reserves of 25.5177 trillion KRW, a 21.9% increase from 20.9397 trillion KRW in the same period last year. This accounts for 28% of the total reserves of all securities firms.

Following Mirae Asset Securities is Hyundai Motor Securities with 16.3804 trillion KRW. However, Hyundai Motor Securities has the highest proportion of affiliated companies at 77% (12.6615 trillion KRW) among all securities firms.

Next are Korea Investment & Securities (13.5714 trillion KRW) and Samsung Securities (12.8612 trillion KRW) in pursuit. Notably, Samsung Securities showed the steepest growth among the top securities firms. Its retirement pension reserves at the end of Q1 this year increased by about 25.8% compared to 10.2245 trillion KRW in the same period last year.

The rapid growth of securities firms in the retirement pension market is interpreted as a result of the increasing importance of returns rather than interest income from stable product management. Additionally, since the default option (pre-designated management system) was implemented in July last year, the securities firms' ability to manage returns has been gaining attention, which seems to have influenced this trend.

An industry insider from the financial investment sector explained, "The growing importance of the retirement pension market is a timely change due to population aging," adding, "Active management in defined contribution (DC) retirement pensions and individual retirement pensions (IRP) can prevent assets responsible for retirement livelihood from being left idle as low-interest funds."

Furthermore, according to related government departments such as the Ministry of Economy and Finance, although no specific details have been finalized regarding pension system reforms such as mandatory workplace retirement pensions and restrictions on mid-term withdrawals from DC plans, discussions on improvement measures are ongoing. The industry expects that if the introduction of retirement pensions at all workplaces becomes a reality, the pension market size will expand further.

Fierce Market Preemption Competition... "RA Will Penetrate Fully"

The securities industry anticipates continuous inflows of large sums into the retirement pension market and is aggressively expanding its business to secure advantageous positions in the multi-billion won 'fee battle.'

Mirae Asset Securities, the industry leader, operates a dedicated retirement pension division providing personalized pension portfolios and differentiated pension asset management services and marketing. Hyundai Motor Securities is also strengthening its retirement pension business capabilities by expanding related organizations, infrastructure, and consulting. Consequently, Hyundai Motor Securities is steadily increasing the proportion of non-affiliated companies in its retirement pension reserves, solidifying its position in the pension market.

Meanwhile, with AI-based RA retirement pension discretionary management scheduled to be implemented in the second half of the year, the industry analyzes that RA capabilities will become increasingly important to enhance competitiveness and attract customers in retirement pension services. RA services are divided into 'advisory services,' which only recommend automated portfolios, and 'discretionary services,' which handle product trading automatically. Until now, discretionary management was not allowed for retirement pensions, but in July last year, the government announced through a regulatory sandbox that investment discretionary RA services would also be permitted for retirement pension reserves. Currently, a testbed review is underway, and the industry expects RA retirement pension discretionary services to be launched in the market by the end of this year or early next year.

Accordingly, securities firms are hastening preparations for the full-scale sale of RA products related to retirement pensions. An industry insider said, "Securities firms are the most proactive in market preemption by reorganizing AI-related organizations, developing RA technology in-house, or partnering with or investing in related companies," adding, "Banks, which face restrictions due to the lack of investment discretionary licenses, are pursuing partnerships with RA discretionary operators." He further predicted, "If RA services are fully permitted after pilot operation in the sandbox form, it will have a significant impact on the market. Securities firms holding discretionary licenses are expected to benefit, and competition among financial companies for market preemption will intensify."

Moreover, it is expected that service sophistication, including strategies related to pension withdrawals as well as improving management returns, will be necessary. A researcher at a financial research institute said, "The domestic retirement pension market is growing quantitatively at a high rate, but there are still qualitative aspects that need improvement," adding, "It is expected that the use of RA can raise the qualitative level, such as returns, to some extent." He also suggested, "To secure competitiveness in retirement pension services in the future, consideration of withdrawals as well as management is necessary," and recommended, "To maximize the final retirement pension amount, it is necessary to diversify service types through increasing reserves and withdrawal strategy consulting in collaboration with insurance companies, card companies, and others."