National Pension Service Chairman Kim Sung-joo announced the NPS would enter the retirement pension market at a press conference on the 23rd of last month. The announcement aims to address low returns and high fees, with Kim stating the NPS could offer fees one-third lower than private operators and returns three times higher. Expert opinions are divided, with cautious views slightly prevailing, focusing on structural differences between pension systems, anticipated inefficiencies, and doubts about achievable return improvements.
NPS Chairman Kim Sung-joo Announces Entry into Retirement Pension Market
Kim Sung-joo held an online press conference on the 23rd of last month and announced that the National Pension Service would participate as an operator in the retirement pension market alongside discussions on introducing fund-type retirement pensions. Kim stated the NPS would play a "catfish role" to improve the retirement pension market, which is trapped in a structure of low returns and high fees. As of the end of last year, the retirement pension market reached 501 trillion won, with 49.6% of DC (defined contribution) and IRP (individual retirement pension) subscribers earning returns in the 2-4% range, barely keeping pace with inflation.
Kim expressed confidence that "in terms of cost-effectiveness, if the National Pension Service participates in the retirement pension business, fees could be one-third the level of the private sector and returns could be expected to be three times higher." The NPS is prioritizing an open model for public institutions, grouping approximately 340 public institutions, which represent 0.2% of all public institutions.
Experts largely agree that this discussion requires sufficient social debate and institutional design, as it is directly connected to redefining roles between public and private pensions beyond simple business expansion. They point out that cautious approaches are necessary because the NPS's participation will clearly have significant market impact.
Experts Cite Structural Differences and Political Independence Concerns
Opposing experts argue that the logic that the NPS will improve returns lacks persuasiveness. Kim Kyung-sun, president of the Korea Retirement Pension Development Institute, explained, "Retirement pensions were introduced in 2005 and have a short history, and the structure disperses accounts when subscribers change jobs, so accumulation periods are not long. There are also regulations requiring 30% of total assets to be invested in safe assets (bond-mixed ETFs, etc.). In contrast, the National Pension accumulates for more than 20 years and has a clear payment timing. Return differences stem from differences in accumulation period, scale, and regulations, not management capability."
Min Joo-young, managing director of Shinyoung Securities' pension business division, also pointed to risk and safe asset limit regulations applied only to the retirement pension system, while rebutting the return improvement logic by stating, "The recent rise in NPS returns is thanks to the upward trend in the domestic stock market." In fact, last year, the domestic stock portion of NPS assets achieved a return of 35.12%, driving the total asset return (18.82%).
Kim Sung-il, director of the Ieum Research Institute, criticized, "Returns have high volatility depending on market conditions, and it is unreasonable to generalize competitiveness based on this. Since both systems have different purposes and structures, they should be cautious about comparing them on the same level or expanding roles."
Concerns about the NPS's weak political independence were also raised. Yoon Seok-myung, research fellow at the Korea Institute for Health and Social Affairs, warned, "Since February, the NPS has been mobilized for government policy, such as postponing rebalancing (asset allocation adjustment) under the pretext of stabilizing the foreign exchange market through a new framework involving the Ministry of Health and Welfare and the Ministry of Economy and Finance. Without securing political independence, this will become a starting point for trying to control retirement pensions as well."
There are also concerns that subscribers with insufficient financial knowledge are more likely to choose based on trust in the name "operated by the National Pension Service" rather than comparing operational performance. Professor Young-joo Nielsen of Sungkyunkwan University analyzed, "If it has not been sufficiently verified that the NPS operates retirement pensions better than other operators, this could become a nudge that induces choices favorable to a specific operator, beyond a nudge that encourages investment participation."
Supporters Highlight Competition Benefits and NPS Infrastructure Advantages
Supporting views that positive effects can be expected from forming a competitive structure in the market are also substantial. Professor Choi Kyung-jin of Gyeongsang National University stated, "If the National Pension Service raises returns based on its own infrastructure, other operators are also expected to make efforts to improve returns." Professor Choi believes that currently, the role of open retirement pension operators for public institutions is limited to retirement pensions for small and medium-sized enterprises operated by the Korea Workers' Compensation and Welfare Service, and even this lacks a properly established operating organization. He predicted, "As the scale of fund-type retirement pensions continues to increase, investment targets such as alternative investments must also diversify, and the National Pension Service, which has various infrastructure and processes, could take on this role."
Professor Nam Chan-seop of Dong-A University's Department of Social Welfare also viewed that "if operations are centered only on financial institutions, there may be insufficient checks and balances in terms of fees and other aspects." However, he added that specific participation methods need more consideration. He stated, "It would be desirable to approach through entrusted operations in a federated structure or focus on blind spot groups such as platform workers." This means that the NPS's participation does not perfectly align with the policy purpose of introducing fund-type retirement pensions, which included resolving blind spots.
Professor Jeong Chang-ryul of Dankook University's Department of Social Welfare had similar thoughts. He stated, "The National Pension Service has accumulated operational know-how as a long-term investor and can contribute to improving returns," but questioned, "Isn't the purpose of the open model for public institutions to improve returns for blind spots or small businesses that the private sector cannot handle?"
Song In-ho, director of the Korea Development Institute (KDI) Economic Information Center, also supported, stating, "Statistically, NPS returns always appear higher than principal-guaranteed products. The NPS's participation is an institutionally necessary choice for the people." He also stated that there would be an effect of expanding choices for subscribers who remain at very low returns in DB (defined benefit) plans.
FAQ
Q: What did NPS Chairman Kim Sung-joo announce on the 23rd of last month?
A: Kim Sung-joo announced at an online press conference that the National Pension Service would participate as an operator in the retirement pension market, aiming to improve low returns and high fees by offering fees one-third lower than the private sector and returns three times higher.
Q: Why do opposing experts question the NPS's ability to improve retirement pension returns?
A: Opposing experts argue that return differences between the NPS and retirement pensions stem from structural factors—accumulation periods, scale, and investment regulations—rather than management capability. They point out that retirement pensions have shorter histories, dispersed accounts, and mandatory safe asset allocation requirements that the NPS does not face.
