In Step with Pension Reform... Financial Services Commission Chairman Urges Development of Pension Products like TDF

Chairman Kim Byunghwan Attends Asset Management Industry Meeting
Government Emphasizes TDF Product Development in Line with 'Pension Reform'
Urges Participation in Capital Market Advancement Including Value-Up Initiatives

On the 5th, Kim Byunghwan, Chairman of the Financial Services Commission, met with CEOs of the asset management industry and urged them to "strive to develop stable long-term investment pension products." The photo shows Chairman Kim Byunghwan of the Financial Services Commission. Photo by Kang Jinhyung aymsdream@

On the 5th, Kim Byung-hwan, Chairman of the Financial Services Commission, met with the CEOs of domestic asset management companies and urged them to "strive to develop stable long-term investment pension products." This request was made in line with the government’s ‘Pension Reform Promotion Plan’ announced the previous day, asking the asset management industry to make thorough preparations for launching private pension products.

Chairman Kim made these remarks during the sixth financial sector relay meeting, held as an ‘Asset Management Industry Meeting’ at the Korea Financial Investment Association in Yeouido, Seoul. In addition to six public offering asset management firms, private and foreign asset management companies also attended the event.

He stated, "There is a need for serious discussion on how the asset management industry can enhance its competitiveness and further develop to meet the asset management demands of the public and prepare for the future amid aging society."

In particular, Chairman Kim emphasized, "The role of the asset management industry in preparing for retirement and managing assets throughout the life cycle is more important than ever," adding, "Considering the overseas private pension markets where fund investments are mainly focused on target-date funds (TDFs), the development of our private pension market also depends on the capabilities of asset management companies."

Chairman Kim’s remarks are closely related to the pension reform promotion plan announced the previous day. The government unveiled a reform plan to gradually raise the National Pension contribution rate, currently 9% of income, by 0.25 to 1 percentage point annually by age group, ultimately increasing it to 13%. The government also announced policies to mandate retirement pensions and expand tax benefits for personal pensions. The plan aims to strengthen the retirement safety net through a ‘three-tier pension’ system consisting of National Pension, retirement pension, and personal pension. The Financial Services Commission will steadily promote initiatives such as a discretionary retirement pension sandbox using robo-advisors and the establishment of a retirement pension switching system, supporting the emergence of various private pension products.

Chairman Kim also pointed out, "There has been negligence in efforts to enhance long-term corporate value due to focusing on short-term profit pursuits such as copying exchange-traded funds (ETFs), lowering fees, and formalistic voting rights exercises," urging the asset management industry to actively exercise voting rights as part of value-up efforts. This aligns with the request made by Lee Bok-hyun, Governor of the Financial Supervisory Service, to the asset management industry on the 8th of last month.

Emphasizing the qualitative growth of the asset management industry, he also criticized the concentration on specific assets and products. He called for the creation of original and specialized products using innovative technologies such as artificial intelligence (AI) and big data. Chairman Kim stated, "The Financial Services Commission will also promote the diversity and accessibility of public offering funds through initiatives such as public fund listings and fund comparison recommendation services," adding, "We will also strive for legislative efforts to promptly introduce Business Development Companies (BDCs) to enable innovative companies to stably attract venture capital." Furthermore, plans are underway to review and evaluate the operation of private fund systems and proceed with institutional improvements.

The asset management industry responded by pledging to strengthen its role as a ‘stock market safety net.’ They will participate in corporate value-up programs and promptly launch value-up funds. They also plan to actively exercise voting rights to comply with fiduciary duties. Seo Yoo-seok, Chairman of the Korea Financial Investment Association, said, "Considering the recent significant volatility in the Korean stock market due to external factors, the role of public offering funds as institutional investors acting as a ‘safety net’ has been very weak," adding, "We plan to work with the industry to ensure that funds become a solid foundation for the capital market."

The industry also pointed out problems in the retirement pension market and urged the government to improve the system. Chairman Seo noted, "The domestic retirement pension market is excessively concentrated on principal-guaranteed products, losing its function to secure the public’s retirement," highlighting the need to shift to performance-based products. Additionally, they proposed support for tax benefits for long-term investment funds.