Corporate pension plan market expected to soar

Korea’s corporate retirement pension market is set for massive growth next year as the government weans corporations off of retirement trusts and retirement insurance.

Last week, the Financial Supervisory Service notified financial institutions to stop offering retirement insurance and retirement trust products, which have been popular for companies wanting to offer some incentives when they retire, but not wanting to go all the way with a pension plan.

The move is essentially a shot in the arm for financial companies looking to land business from conglomerates, as it forces firms to adopt pension programs.

The size of the corporate retirement pension market has exploded since the government first introduced the system in December 2005, having grown from just 760 billion won ($658 million) at the end of 2006 to 14 trillion won at the end of 2009, and 21 trillion won as of the third quarter of this year.

Next year, the market for corporate retirement pensions is expected to double.

As previous systems such as corporate retirement insurance and retirement trusts are discontinued and pensions become dominant, companies that have been postponing the switch will have to make the change next year.

The list includes heavyweights such as Hyundai Motor, Hyundai Heavy, Posco and KT, which each retain more than 1 trillion won in severance pay reserves and are extremely attractive for financial institutions.

As of October, the retirement pension market was divided between the banking industry (51.7 percent of the market), insurance firms (34.6 percent) and securities companies (13.6 percent), according to the FSS.

Experts are quick to point out the difference between corporate retirement pensions, retirement insurance and trusts.

“There are key differences between the pension system, retirement insurance and trusts,” explained an FSS official. “The former system has the most flexibility.

“With pensions, management and employees must agree when choosing the financial institution or the form of the pension - instead of the company unilaterally choosing the product,” said the official.

“Pensions allow for a greater variety of investment methods, which can be chosen by either the company or employees.”

Fifty-five institutions provided corporate retirement pension products as of the end of October, including 15 banks, 17 securities firms, 22 insurance companies and others such as the Korea Workers’ Compensation & Welfare Service.

By Lee Jung-yoon [joyce@joongang.co.kr]