NPS hit for losing pensioners' money

National Pension Service CEO Kim Sung-joo

By Jhoo Dong-chan

The National Pension Service (NPS) is facing growing criticism for its disappointing fund management in 2018. Critics claim the state pension agency concentrated too much on introducing a stewardship code while neglecting its earnings in fund management.

According to the NPS, it posted a 5.9 trillion won ($5.24 billion) net loss last year, suffering a 16.8 percent loss in its investment in the nation's stock market. The agency's entire yearly earnings rate was also negative at 0.92 percent.

This was the first loss in 10 years since the NPS recorded one loss in 2008 during the global financial crisis.

An NPS official said, however, the agency's earnings were not bad at all considering the nation's sluggish stock market last year.

“It's not yet at a level for concern,” NPS CIO Ahn Hyo-joon said during a National Assembly hearing Jan. 31, citing it was the most profitable pension fund management agency in the world after the Canada Pension Plan Investment Board which posted an 8.4 percent return rate last year.

The world's largest pension fund, the Japanese Government Pension Investment Fund, posted a 7.7 percent loss while the California Public Employees' Retirement System and Dutch ABP recorded a 3.5 percent and 2.3 percent loss, respectively.

Experts said, however, the agency should at least post higher earnings than the market average considering Korea's radical demographic change and the fund's depletion pace.

According to the Korea Institute of Finance, the average earnings rate of the nation's equity funds investing in domestic shares was 0.35 percent, 1.27 percentage points higher than the agency's return rate.

“The decline in the birthrate and the increase in the average life span are expected to increase the number of people eligible to receive the pension,” said a Mirae Asset Daewoo analyst.

“Considering the pace, it should post earnings if it does not want itself to be exhausted. The NPS should come up with more elaborated risk management and a strategic investment system. It's not time to widen its influence by introducing a stewardship code.”

The stewardship code, pledged by President Moon Jae-in during his election campaign, is a set of guidelines that encourage major shareholders to push for better corporate governance and higher dividends from the companies they invest in.

Major investors started engaging more actively in firms' decision-making processes since the NPS adopted its stewardship code last July to be more proactively involved in corporate governance in nearly 300 local companies the agency has invested in.