[Inside Chodong] Retirement Pensions as a Catalyst for the Korean Stock Market? The Order Is Reversed

Retirement pensions are a representative sector where the principle of ‘High risk, high return’ does not apply. With retirement pensions totaling around 400 trillion won serving as the ‘last bastion’ of workers’ retirement funds, the emphasis has traditionally been placed on ‘stability’ rather than ‘profitability.’ However, as the average annual return remains at around 2%, roughly matching the inflation rate, calls to improve profitability have been growing louder.

Recently, even financial authorities advocating for the revitalization of the Korean stock market have joined this cause. The Financial Supervisory Service included a ‘Plan to Improve Retirement Pension Returns Linked to the Capital Market’ in its 2025 business plan report. The main points are to abolish the 70% investment limit on retirement pension performance-based products and to allow direct investment in individual stocks.

The 2% return rate clearly needs improvement. However, a closer look at the financial authorities’ claims raises questions. The current retirement pension management system is a contract-type structure where subscribers decide their investment intentions directly. The fact that a staggering 87% of the accumulated funds are concentrated in principal-guaranteed products, such as bank deposits and savings, is also the choice of the subscribers. Simply abolishing the investment limit may not change this behavior. The government already raised the investment limit to 70% in 2015, but since then, there has been no significant reduction in the proportion of principal-guaranteed products nor an increase in returns. It is also difficult to make a simple comparison with the United States, where the management system is completely different.

The financial authorities argue that this measure is about ‘loosening minimum regulations so that individuals can invest on their own,’ but here too, the ‘firm’ purpose of retirement pensions?‘securing retirement funds’?is at stake. Moreover, unlike other financial products where individuals manage their investments independently, pension management requires expertise and market analysis, putting individual investors at a significant disadvantage.

There is a need for the financial authorities to be highly vigilant about whether the ‘minimum’ regulatory relaxation might lead to aggressive investment product inducement based on market logic, whether individuals, exposed to information asymmetry, might be tempted by short-term returns and risk losing their retirement funds, and whether this process might ultimately undermine the long-term stability of the pension system. The Ministry of Employment and Labor, the main department overseeing retirement pensions, dismissed the idea by stating, “Retirement pensions are not an issue to be promoted for financial market revitalization,” reflecting these concerns.

The financial authorities, who are determined to revitalize the Korean stock market, seem to expect to attract large-scale retirement pension funds as long-term investment resources for the stock market and use them as a catalyst for capital market development. However, the order is reversed. Creating a market and pension management system that enable long-term investment must come first. Retirement pensions, as the last bastion of workers’ retirement funds, can help foster a mature financial market but can never become ‘market liquidity.’

The widely acknowledged low returns on retirement pensions stem from individuals’ reluctance to actively invest their pensions and their concentration in principal-guaranteed products. Then, is this concentration simply due to investment regulations, or is it because of workers’ unyielding determination that ‘retirement funds must never be lost’?

Ultimately, might it be due to a lack of trust in the Korean stock market and asset management companies? Or because a management system that can supplement and support subscribers’ investment expertise has not been properly established? There is a saying, ‘Money goes where it is treated well.’ Retirement pension assets are certainly no exception.