ED Low asset yields

Government must improve pension fund's operational performance

The National Pension Service's operational rate of return has reportedly entered into negative territory. According to the NPS fund management committee, the accumulated asset yields of the state pension service stood at -0.57 percent in the first 10 months of last year.

Given the turbulent global stock market conditions in the last two months of 2018, the national pension fund is highly likely to have lost capital last year instead of making money. If the loss of capital becomes a reality, it will be the first such case since 2008 when the U.S. financial crisis spread to the rest of the world.

There are several reasons for the plunging asset yields. Above all, the NPS fund managers performed extremely poorly in the local stock market, which accounts for 17 percent of their total asset operation. The average loss from the investment into local stocks came to -16 percent, pulling down the overall rate of return. Even acknowledging the volatility of the global stock markets, the pension fund's erosion of the capital is very worrisome.

NPS officials attribute their problems to unusually bearish stock markets at home and abroad in October. That can hardly justify their disappointing performances, however. The government had left the post of the NPS chairmanship vacant for as long as 15 months. More than a few of the 14 professional fund managers have already gone, too. Under such a situation, it was somewhat unreasonable to expect the pension fund to generate a positive operational rate of return.

The Ministry of Health and Welfare is vowing to reform the NPS and has begun to gather views to ensure the fund's sustainability. It was irresponsible, however, for the ministry not to put forth any concrete measures aimed at enhancing the asset yields. A 1 percent hike in the rate of return has the effect of raising insurance premiums by 2 percent.

The government must realize it is impossible to ensure the fund's sustainability without enhancing its operational rate of return. It ought to examine various ways from the ground up, ranging from assuring the fund's operational independence to relocating its headquarters to Seoul, and dividing the fund's operation to introduce more in-house competition.