Banks, insurers, asset managers cry foul over NPS entry into privately run pension market

National Pension Service in Jeonju, North Jeolla Province / Courtesy of NPS

A coalition of commercial lenders, insurers, brokerages and asset managers is fortifying its campaign against the entry of National Pension Service (NPS) into the privately run lump-sum severance pay-funded market of nearly 400 trillion won ($290 billion), observers said Monday. 

At issue is stagnant returns on the privately run market funds limited to around 2 percent, far lower than 7 percent generated by the NPS.

The political circle at large is in agreement with the reform of the privately run funds. The main opposition Democratic Party of Korea (DPK) say higher income for many seniors in post-retirement life standards is a desirable objective long embraced by the labor. The ruling People Power Party (PPP) says the NPS presence will foster healthy competition, elevating the country’s severance payment operation capabilities. 

However, the coalition says market inefficiency will heighten, influenced almost exclusively by the NPS with a sheer portfolio volume of around 1,400 trillion won. The NPS currently has 1,000 trillion won under management. Also concerning is the NPS’ misplaced priority in neglecting its sustainability amid rapid aging, they say.

“We have submitted our opinions to a variety of government legislative and business bodies, including the National Assembly Research Service and the Federation of Korean Industries,” said an official of Korea Financial Investment Association (KOFIA).

The role, priorities and investment methods vary between the NPS and the remaining fund managers, the official said.

“Many of our subscribers opt for short-term investment that generates limited growth in immediate return, and are more about the full protection of their initial investments. Our portfolio therefore cannot take a risk-on approach to the detriment of the subscribers.”

Another problem is the political influence of key corporate managerial decisions, shaped by the enormous voting power of the NPS with substantial stakes in listed firms.

“A portfolio of that scale will only solidify dominance of the NPS,” the official said.

“The NPS and by extension the incumbent administration will be able to call all the shots in the legitimate form of voting. A case in point concerns the approval of mergers between Samsung Group affiliates.”

The country’s severance pay-funded market grew to 382.4 trillion won as of end-2023, more than doubling from 190 trillion won in 2018.

Banks constituted over half, or 198 trillion won, followed by asset managers and brokerages with 86.7 trillion won and life insurance at 78.4 trillion won.

Rep. Park Soo-young of PPP, the pension reform committee chair, said last month that an increase in pension fund manager size will translate to higher return for subscribers.