As the trend of "investing pensions" — putting retirement pension money to work rather than leaving it idle — takes hold, each subscriber's investment conditions have emerged as a variable widening the gap in retirement assets. Even in accounts where subscribers can pick products themselves, the share of principal-guaranteed products remains high, and returns on such products have at times failed to keep up even with inflation. This is behind the calls to fix the default option, the automatic management mechanism.
According to the Financial Supervisory Service's integrated pension portal on the 27th, as of the second quarter this year, money in principal-guaranteed products accounted for 46.1028 trillion won, or 82.5%, of default option reserves. The one-year return on ultra-low-risk default options, which mainly hold deposits and the like, was only 2.37%. High-risk products posted 32.66% and medium-risk products 21.78%, so returns differed by up to nearly 14 times depending on risk grade.
The default option (pre-designated management system) automatically invests money when retirement pension subscribers find investing difficult or do not manage it separately for practical reasons. In Korea it was introduced in 2023 with the aim of compensating for subscribers' passive management habits and raising long-term returns. Yet even after the system took effect, most reserves still remain on the side of protecting principal.
The difference in management orientation also showed up in actual performance. According to the Ministry of Employment and Labor's "Retirement Pension Investment White Paper," last year the top 10% of pension returns allocated 84% of their reserves to performance-based products and earned 19.5% over one year. The bottom 10% left 74% of reserves in principal-guaranteed products and posted a return of just 0.5%. Given that inflation that year was 2.1%, the bottom 10% effectively suffered a loss.
Awareness of pensions as an investment target itself is spreading. The basis is the rapid growth in defined contribution (DC) plans and individual retirement pensions (IRPs), where subscribers can build their own portfolios. Last year DC reserves grew 19.6% from a year earlier and IRP reserves grew 32.6%. Compared with the 6.7% growth rate of defined benefit (DB) plans over the same period, the growth is much steeper.
The problem is that management methods and performance vary greatly depending on subscribers' interest and investment capability. The asset gap between subscribers who actively manage their pensions and those who choose principal-guaranteed products or leave their money untouched is bound to grow over time. In a survey on office workers' perceptions of retirement pensions released by the Korea Employers Federation last year, 57.1% answered, "I am interested in managing my reserves but don't know how to do it." The share of respondents saying pension reserves should be managed as stably as possible was 62.8%.
Amid this atmosphere, Korea's retirement pension returns lag behind those of major foreign countries. Comparing retirement pension returns over the five years through 2023, Korea's 2.42% falls far short of the U.S. (10.12%) and Australia (7.42%).
The U.S. and Australia lead not because subscribers are particularly good at investing but because default options are doing their job. The U.S. default option, the QIDA, puts money into target date funds (TDFs) and balanced funds (BFs) and in principle does not include principal-guaranteed products. Australia's MySuper also automatically divides investments among multiple assets such as stocks, bonds and real estate. Australia also has choice options with principal-guaranteed characteristics, but it has rules to evaluate performance each year and classify products whose returns fall short of the benchmark as failed products.
The way they operate also differs greatly. In the U.S. and Australia, the default option is applied automatically to pension accounts that subscribers leave untouched, but in Korea management starts only after the subscriber picks a product. It is pointed out that to live up to the purpose of the system, the current structure that shifts the burden of choice onto subscribers must be fixed first.