Two Impeachments, Two Failures... Over a Decade of Retirement Pension Debate Must End [Fund-Type Retirement Pension] ①

Active Discussions Early This Year...
Momentum Lost After the New Administration
A Familiar Pattern Repeats...
Legislative Bills Discarded Amid National Assembly Backlog

Discussions on introducing the fund-type retirement pension system have been ongoing for more than a decade, but a final resolution has yet to be reached. Every time the implementation of the fund-type system began to gain momentum, it lost steam due to political turmoil caused by events such as presidential impeachments and changes in administration. As retirement pension reserves surpassed 400 trillion won for the first time last year and continue to grow rapidly, experts advise that the introduction of the fund-type system should no longer be delayed.

Active Discussions Early in the Year... Quiet Since the New Administration

With the new administration inaugurated on the 4th, attention has focused on the direction of the fund-type retirement pension system. Last year, retirement pension reserves reached a record high of 431.7 trillion won, but with persistently low returns, the fund-type system has emerged as an alternative. According to recent government data, the annualized returns for retirement pensions over the past five and ten years were just 2.86% and 2.31%, respectively.

The fund-type retirement pension system establishes a separate, independent fund outside the company, with a fund management committee composed of labor, management, and experts determining the investment direction. Execution is carried out by a trustee corporation. This system differs from the contract-type, such as defined benefit (DB) and defined contribution (DC) plans, in which companies or employees contract with a retirement pension provider (financial institution) and assume operational responsibility. The fund-type system offers the advantage of higher returns through more professional investment management and economies of scale.

Last year, the government formed a "Retirement Pension System Improvement Task Force (TF)" and explored the possibility of introducing the fund-type system during discussions. The "2025 Economic Policy Direction" announced in January of this year included a plan to review the introduction of the fund-type system. In February, then-Minister of Employment and Labor Kim Moonsoo announced the intention to push forward with the fund-type system, marking progress in the discussions. Subsequently, in March, the Ministry of Employment and Labor established the "Fund-Type Retirement Pension System Introduction Task Force" to prepare for a legislative proposal in the second half of the year.

However, after the impeachment ruling against former President Yoon Suk-yeol in April and the ensuing change in administration, political turmoil put the discussions on hold. The Retirement Pension System Improvement TF had aimed to present a reform plan within the first half of the year, but no results were produced. The Fund-Type Retirement Pension System Introduction Task Force was unable to conclude its discussions and extended its operation period, which was originally set to end this month. As a result, the preparation of a legislative bill in the second half of the year is now likely to be delayed.

The current administration's plan for introducing the fund-type retirement pension system also remains unclear. President Lee Jaemyung pledged to expand the Blue Seed program, a retirement pension fund for small and medium-sized enterprises with fewer than 30 employees, but did not include a comprehensive plan for the fund-type system. A senior government official stated, "If we approach this as a way to expand the options from contract-type to fund-type, it can be pursued flexibly," but added, "As far as I know, there are currently no agreements in place."

The Same Pattern in the Past... Legislative Bills Discarded Due to National Assembly Backlog

The current situation is similar to the period after 2014, when discussions on the fund-type retirement pension system first began. The Park Geun-hye administration included in its 2014 "Private Pension Revitalization Plan" a phased introduction of the fund-type system starting with large corporations in July 2016, to be run in parallel with the contract-type system, but this was never realized. Instead, in September 2016, the government pre-announced a revision to the "Employee Retirement Benefit Security Act" to lay the legal groundwork for introducing the fund-type system.

However, as the impeachment proceedings against former President Park intensified from late 2016 to early 2017 and political turmoil continued, momentum for legislative action was lost. Following the impeachment ruling and the subsequent change in administration, the Moon Jae-in government, inaugurated in May 2017, did not include the introduction of the fund-type system among its top 100 policy tasks. In April of the same year, the Regulatory Reform Committee raised concerns that restricting trustee corporations to non-profit foundations could hinder the spread of the system.

The government partially revised the bill by easing restrictions on corporate trustees, and after a year, the bill was finally approved by the Cabinet in April 2018. Despite having completed a review by the Ministry of Government Legislation, there was controversy over whether the government had withdrawn the bill before the Cabinet's approval, but the bill was sent to the National Assembly. However, the bill failed to pass the standing committee and was automatically discarded in 2020 with the end of the 20th National Assembly session, ending six years of effort in failure.

Kim Jaehyun, professor at Sangmyung University's Department of Global Finance Management and former president of the Korean Pension Association, recalled, "Retirement pension providers (financial institutions), concerned about weakening the contract-type business base, opposed the introduction of the fund-type system by citing high-cost structures and other factors. The provision in the bill allowing only non-profit trustee corporations also provided grounds for opposition."

However, in March 2021, an amendment to the Employee Retirement Benefit Security Act, initiated by the National Assembly rather than the government, was passed in the plenary session, establishing the legal framework for operating the Blue Seed program starting in 2022. Operated by the Korea Workers' Compensation and Welfare Service, Blue Seed has grown rapidly since its introduction, with reserves exceeding 1 trillion won last year. Its annual return was 6.52%, significantly higher than that of general retirement pensions. This has served as a model for the introduction of the fund-type system.

Experts believe that the decade-long discussions on introducing the fund-type system must now be concluded. Given the rapid growth of retirement pensions, further delays are inadvisable. Nam Jaewoo, research fellow at the Korea Capital Market Institute, suggested, "There may be a need for public retirement pension funds operated by public institutions, like Blue Seed run by the Korea Workers' Compensation and Welfare Service," adding, "There will certainly be a public market that involves government financial support."