[Weekend Money] Four Strategies to Grow Your Precious Retirement Pension Effectively

Retirement Pension Market Expected to Exceed 500 Trillion Won This Year
Defined Contribution (DC) Plans More Advantageous Than Defined Benefit (DB) Plans
Need to Manage Retirement Pensions with a Focus on Performance-Based Products

As the domestic retirement pension market expands rapidly, it is expected to reach the 500 trillion won mark this year.

According to a retirement pension report recently released by the NH Investment & Securities 100-Year Life Research Center, domestic retirement pension reserves have shown an annual growth trend well above 10% over the past 10 years.

As of the end of last year, retirement pension reserves exceeded 495 trillion won, and they are expected to usher in the 500 trillion won era starting this year. This is equivalent to about one-third of the National Pension Fund, which stands at 1,473 trillion won. The research center assessed that retirement pensions have now reached a sufficient scale to serve as a core asset for old age, comparable to the National Pension.

According to retirement pension statistics from the National Data Office, in 2024 defined benefit (DB) plan reserves increased by 9.1 trillion won, defined contribution (DC) plan reserves increased by 16.7 trillion won, and individual retirement pension (IRP) reserves increased by 23.1 trillion won. The increase in IRPs, which are directly managed by subscribers, was the most pronounced, followed by DC plans, which are also managed by employees.

Based on the National Data Office statistics, the research center proposed four retirement pension management strategies for office workers.

First, the research center stressed the need for a management strategy focused on DC plans rather than DB plans. In an environment of low wage growth, it is difficult to expect sufficient retirement assets relying solely on DB plans, which are linked to wages at the time of retirement. In particular, DB plans, which were designed on the assumption of long tenure and rising wages, are revealing their limitations amid a more flexible labor market and a low-growth structure. Therefore, it is necessary to reorganize strategies around DC plans and IRPs that individuals can manage directly.

Second, it stated that retirement pension strategies should be shifted from principal-and-interest-guaranteed products to performance-based products. Expanding the share of performance-based products is an inevitable choice in a low interest rate environment. In retirement pensions, which are premised on long-term management, low returns increase the risk of a decline in real value. Performance-based products should be placed at the center of the portfolio in line with one’s age and risk tolerance, while safe assets should be used as a buffer depending on financial market conditions.

Third, the criteria for choosing a financial institution should be changed from "stability" to "investment capability." The reason the share of securities companies in the retirement pension market is expanding is that they offer strong competitiveness in performance-based products and a wide range of investment options. Financial institutions should be selected based on product diversity, fee structure, and the convenience of rebalancing and transfers, rather than on simple transactional relationships.

Lastly, it pointed out that retirement pensions should not be designed on the assumption of early withdrawals. The increase in early withdrawals, mainly for home purchases, shows that retirement pensions are being perceived like emergency funds. However, early withdrawals fundamentally undermine the effect of compound interest. The research center argued that it is necessary to secure emergency funds and housing funds separately from retirement pensions, and to structurally separate and strictly protect retirement pensions as assets dedicated to old age.

This content was produced with the assistance of AI translation services.