[VIEWPOINT]Ideas for National PensionRight after clashes between government ministries over whether or not to allow the government to invest National Pension funds in public works projects, the business community officially announced its opinion that the voting rights of shares held by the National Pension fund should be restricted.
Meanwhile, civic groups are urging the public to reject payments from the National Pension because it is going to be drying up soon, which naturally confuses people and deepens their disapproval.
Having a happy life is important to everyone, and in many cases a successful life depends on the quality of life after retirement. In highly developed countries, retirees have to spend around 130 percent of their income at their time of retirement to maintain a dignified life. A higher level of consumption is required because they have to depend more on others for medical reasons, among others.
Most of these expenses are mitigated by money from the nation’s pension, private pensions and insurance premiums, savings and stock investments and real estate. People who invested in these sectors in a balanced manner depend on the national pension for 33 percent of their income after retirement.
Therefore, the administrative goal of Korea’s National Pension is to give people the assurance of payment upon retirement. If there isn’t enough money, the gap could be filled with tax money, but considering there will be a deficit of 1,850 trillion won ($1.74 trillion) by 2030, young people today probably find it hard to believe that they’ll be able to collect from the National Pension system.
People who pay into the pension are assured of receiving payments later if assets exceed debts or when the administration reaches its goal of a manageable deficit. This goal can only be reached by reducing debts and increasing asset value.
In order to do this, two things need to be done: First, the rate of earnings from asset investments should be raised, and second, administrative costs should be reduced.
In other words, application costs should be minimized by streamlining the structure to an efficient one, and the investment earning rate should be maximized by letting a highly professional workforce handle asset management.
So no matter who is in charge of the management of the National Pension system, the important points are whether management is efficient, has professional expertise in investing, and whether the National Pension can be free from outside pressure to attain its goal of increasing the value of its assets.
First of all, according to the rules of asset management, we have to take risks if we are to maximize the value of the pension’s investments. What matters here is whether or not the recently criticized securities and public works projects should be included as recipients of investment.
The investment assets of a public pension are divided into domestic and foreign securities, bonds and real estate, among others. The amount of investment in each is decided by looking at the rate of earnings, stability, inflation and market risk.
In an age in which risk management technology is developed daily, decisions need to be made based on whether or not management is possible within an acceptable risk range, not based on sweeping generalizations that “investment in stocks shouldn’t be allowed,” or that “investment in public works projects should be banned.”
If the National Pension invests in securities in a big way, its voting rights on the shares it holds will become an issue because it will have a big effect on corporate governance. Business leaders are worried because if the pension’s voting rights are acknowledged while those of business subsidiaries are restricted, the government, in theory, will greatly influence businesses’ management rights, especially on the appointment of a new CEO or investment decisions.
The only fundamental solution to this problem is to establish a system that will make the administrator of the National Pension free from pressures from the government or any other organizations in order to maintain an unbiased position.
If the independence, neutrality and professionalism of the pension administration can be guaranteed, the issue of voting rights would not be much of a problem, because any normal administrator would have no reason to decrease corporate values, not to mention the asset value of the National Pension.
If the National Pension wanted to control the management of a business for reasons other than raising corporate value, that would undermine the spirit of entrepreneurs and could even lead to an economic disaster.
That is why the governance of the national pension should be based on neutrality and independence, with the aim of increasing the pension’s investment assets. When such a structure is established, the debate on whether or not to restrict the pension’s voting rights will soon become moot.
* The writer is a professor of business administration at Hongik University. Translation by the JoongAng Daily staff.
by Sonu Suk-ho