Returns in Australia and Anglo-American Countries Triple... "System Should Be Tailored to Korea's Needs" [Fund-Type Retirement Pension] ③

Competition Among Diverse Funds in Australia
10-Year Average Returns Exceed 7%
Robust Risk Management Mechanisms in Place
United States Focuses on High Returns via Default Options
Sweden and the Netherlands Gain Attention in Europe
"Japan's Case Is Difficult to Reference"

As calls to introduce a fund-type retirement pension system grow louder, examples from Australia and other English-speaking countries are drawing attention. These countries have well-developed private pension systems and, like Korea, exhibit individualistic characteristics in the structure of their retirement pension systems. Experts have advised that Korea should refer to the advantages of overseas cases?such as improved transparency in retirement pension management, higher returns through competition, and strengthened fiduciary responsibility?while adapting them to domestic circumstances.

Diverse Funds Competing in Australia

Australia operates a system called "Superannuation." Superannuation is a mandatory, defined contribution (DC)-based statutory pension, with most workers required by law to participate. A key feature is that workers can freely choose among multiple funds, which encourages competition among funds and helps boost returns. Fund types include corporate funds (established by individual companies), industry funds (alliances of companies in the same sector), and public sector funds (established by government or public institutions), all of which are nonprofit trustee organizations. For-profit trustee organizations, known as retail funds (established by private financial institutions), are also permitted.

Aggressive asset allocation is another factor that drives higher returns. Most Australian workers have adopted the default investment option system called "MySuper," where contributions are automatically managed according to pre-set methods. This system often emphasizes high returns by allocating assets with a ratio of 2:8 between safe and risky assets. As of the end of 2023, the 10-year average returns were highest for industry funds (7.5%), followed by public sector funds (7.0%), corporate funds (6.6%), and retail funds (5.7%).

However, as the risk of loss increases, Australia has established sophisticated institutional risk management mechanisms. These include boards comprised of experts and the use of external investment advisory firms, with a preference for diversified outsourced management. According to "Private Pension Structural Reform and Retirement Pension Governance Reform," published by the Korea Capital Market Institute in May, Cbus, a leading industry fund in Australia, entrusts 11 external managers solely for overseas equities. For default options, the system maintains a high proportion of risky assets but seeks long-term performance through global diversification.

Another notable feature of the Australian fund-type system is the concentration of assets in large, efficiently managed funds, as underperforming funds are gradually weeded out based on their returns and credibility. In fact, between 2017 and 2023, the number of public sector funds decreased from 25 to 8, industry funds from 37 to 22, and retail funds from 117 to 69. The trend toward larger funds helps reduce fixed costs and achieve economies of scale, such as by expanding asset allocation to alternative assets beyond traditional ones.

High Returns in the United States and United Kingdom

The United States operates both DC and defined benefit (DB) retirement pension systems. However, the DC model has become more prevalent, with the 401K plan serving as the representative example. The 401K is one of several DC plans, targeting private sector employees. Employers set up independent trust accounts to manage retirement pension contributions and designate a "named fiduciary" (a private financial institution) responsible for asset management. Unlike Korea's contract-type DC, the U.S. system is more fund-oriented, and academia often cites the United States as a major example of a fund-type DC system.

The 401K allows employees to directly choose from a selection of financial products designed to maximize returns, or to automatically allocate assets through a default option to enhance returns. With a tendency to invest aggressively in high-yield products, the returns are relatively high. In fact, the average annual return for 401K participants at the U.S. asset management firm Vanguard was 13.7% in 2023. The average return over the past five years was also 9.7%. This is four times higher than Korea's average annualized return of 2.31% over the past 10 years as of last year.

The United Kingdom operates both contract-type and fund-type retirement pensions, with DC-based fund-type plans being predominant. In particular, the National Employment Savings Trust (Nest), introduced in 2012, is drawing attention. Nest is a system that pools retirement pensions for small and medium-sized enterprise employees into a fund, which is then managed by an independent trustee. Based on economies of scale and professional, transparent fund management, Nest boasts high returns in the 7?8% range. This is similar to Korea's Small and Medium Business Retirement Pension Fund (Pureun Ssiat).

In Europe, there is a strong tendency toward solidarity, as public pension systems are established nationwide or by industry based on longstanding tripartite agreements among labor, management, and government. In Sweden, the "Premium Pension (PP)" is a DC-based fund-type retirement pension, managed either by a state-established institution (AP7) or private asset managers. The Netherlands has the most advanced DB-based fund-type system in Europe, with returns in the 5?7% range. The National Pension Research Institute has also paid close attention to the Dutch case during its review of fund-type systems.

"Refer to Overseas Cases, but Consider Domestic Circumstances"

Experts agree that while it is important to refer to various overseas examples, efforts must be made to design a fund-type system tailored to Korea's unique circumstances. Song Hongseon, a research fellow at the Korea Capital Market Institute, stated, "Fund-type retirement pensions in the Anglo-American world and Australia actually share the same roots," adding, "As a latecomer, Korea needs to adopt what other countries do well and adapt it to our own reality." He further explained, "Since Korea's system originated from severance pay, it is quite different from overseas. We need to take into account the special circumstances of labor-management relations and the capital market."

Some have expressed concern about introducing a fund-type system, noting that in Japan?where, like Korea, a contract-type retirement pension system has been adopted alongside a fund-type system?there is little difference in returns between the two. Song pointed out, "Japan also started with a severance pay system before introducing retirement pensions, so there are similarities. However, Japan does not have the kind of fund-type system Korea is aiming for, nor is it actively fostering such a system, so it is difficult to draw direct comparisons with other countries."