Pensions should vary investments

Financial Services Commission Chairman Yim Jong-yong pledged to push government-run pension funds to diversify their investments in financial assets to increase their profits, improve their balance sheets and get ready for the rapid aging of Korea.

At the Korea Economic Forum hosted by Korea JoongAng Daily at the Westin Chosun Hotel in central Seoul on Thursday, Yim said he will “actively ease regulations” to enable the country’s pension funds’ money to go into a more varied pool of investments.

The new head of Korea’s top decision-making body in the finance sector said government-run pension funds were too conservative in taking investment risks and focus too much on low-risk assets such as domestic bonds.

“If the profits of state-run pension funds rise, we could improve the quality of people’s welfare,” Yim said. “We will actively ease regulations on management of pension funds so the funds can diversify into different investments, shifting from a current management that focuses on safe assets.”

Under eased regulations, the government will urge private asset managers to participate in broadening the investments of the funds, he said.

According to Statistics Korea, the total investments of state-run pension funds reached 16.8 trillion won ($15.4 billion) in the first quarter of this year, rising about 700 billion won or 4 percent from the previous quarter.

More than half of those funds, or 10.1 trillion won, was invested in domestic bonds or money market funds (MMF), which are regarded as safe investments.

The annual profit of the funds’ investments was only 4.74 percent for bonds and 2.47 percent for MMFs.

The Ministry of Strategy and Finance said in a report in March that authorities in charge of the funds were conservative due to increasing uncertainties in the world economy and gloomy economic data on the Korean market. They focused on domestic bonds because their prices rallied in the aftermath of the central bank’s interest rate cuts.

Yim also said he would persuade more retirees to convert their severance pay into so-called retirement pensions, receiving monthly personal pension payments instead of taking lump-sum payouts. He promised tax benefits on private pension programs.

“We will improve the taxation system [on retirement pensions] in the midst of low interest rates and an aging society,” Yim said.

“We are not trying to induce the [retirement] funds into going a certain way,” Yim added. “An improved taxation regime will enable asset managers [in charge of investing retirement pension funds] to select financial products on their own.”

Yim also said the government would seek cooperation with the private sector in increasing Korea’s role in the China-led Asian Infrastructure Investment Bank (AIIB).

“The launch of the AIIB is a good opportunity for us,” he said. “With the new demands for $800 billion worth of development, the demand for financing is also high.

“It is a new field for Korean financial institutions to pave the way in overseas markets,” he said. “It is important for us to establish our role in cooperation with private financial institutions and how to share risks in projects together.”

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]