NPS could be broke by year 2060

The National Pension Service’s asset management performance has been lackluster compared with the world’s leading pension funds, and as Korea’s population rapidly ages, it risks running out of money by the year 2060, according to the National Assembly Budget Office (NABO).

The NPS saw an average annual return on investments of around 6.9 percent from 2009 to 2013, compared to the Dutch Civil Servants Pension Fund’s (ABP) 11.2 percent and California Public Employees’ Retirement System’s(CalPERS’) 13.1 percent. The Government Pension Fund of Norway (GPF) and Canadian Pension Plan Investment Board (CPPIB) saw 12 percent and 11.9 percent returns during the same period, respectively.

NABO said such a gap in performance was largely due to the NPS’s skewed preference for safer assets and unambitious investment targets.

“The NPS’s current target return merely sustains the real value of the fund under management given the inflation and income growth over time,” NABO said its report.

“In the perspective of longer-term stability of the (NPS’) assets, this cannot really be called a target in real terms,” it said, adding that the fund needs to set more ambitious goals.

The NPS, which manages 470 trillion won ($392 billion), defines its target return on investment as a rate that is in line with “real economic growth and inflation rate.”

But as the country’s population ages rapidly, the NPS is expected to start seeing negative growth in its funds from the year 2044, and completely run of funds by the year 2060.

The NPS currently invests 60.1 percent of its funds in domestic and foreign fixed-income assets, and 39.9 percent in stocks and alternative investments

CalPERS, which manages $301 billion, invests 19 percent of its assets in bonds, and more than 70 percent of its assets in stocks and alternative investments. ABP has allocated 30.3 percent of its assets in bonds, and more than 60 percent in stocks and other assets, while CPPIB invests 26.1 percent in fixed-income assets, and the rest in stocks, real estate properties and infrastructure.

In response to its lackluster performances, the NPS has already made adjustments to its target asset allocations, aiming to lift the proportion of its domestic stock allocations to above 20 percent from its current 17.9 percent, and lower the share of its domestic bond investments to below 50 percent from 55.5 percent by the 2018, though NABO says this “is not enough.”

NABO also stressed that the NPS needs to affirm its independence as a fund manager, saying it “needs to set up realistic solutions to exercise its rights as a shareholder and to become free from criticism that it is heavily influenced by the government.”

Meanwhile, a separate report by lawmaker Kang Ki-jeong showed on Monday that the NPS has seen massive losses related to Daewoo Shipbuilding & Marine Engineering (DSME) over the past 5 years as the firm’s key shareholder.

As of the end of 2014, the NPS had controlled 8.28 percent of DSME, but after news of its massive losses emerged earlier this year, the fund has steadily cut down its stake in the firm to 0.16 percent as of August, this year.

But since the DSME shares continued sinking session after session, losing 63 percent of its value so far this year, NPS has likewise seen losses of nearly 200 billion won.

“NPS saw huge losses due to DSME. And KDB, the major shareholder, is suspected of overlooking window dressing on its account books for years,” said Kang in a statement.

“Somebody needs to be held accountable for this.”

BY PARK JUNG-YOUN [park.jungyoun@joongang.co.kr]