Record loss prompts relocation debate on pension operator's investment division

The headquarters of the National Pension Service (NPS) in Jeonju, North Jeolla Province is pictured in this undated file photo. A total of 164 investment professionals at the state-run pension operator quit since 2017 when it moved its headquarters from Seoul to Jeonju. Korea Times file

NPS headquarters in provincial city cited as factor undermining workers' morale

By Yi Whan-woo

The record investment loss suffered by the National Pension Service (NPS) has sparked a debate over whether its investment division should be relocated back to Seoul from Jeonju, North Jeolla Province, to foster a more favorable working environment.

The NPS, the state-run pension operator, posted an 8.22 percent loss ― equivalent to 79.6 trillion won ($60.19 billion) ― on its rate of return on investment in 2022, marking its worst stint in the red since 1999 when it launched a division exclusively tasked with operating the fund.

The NPS argued that the return rate on investment is largely due to global financial market doldrums and that it fared relatively well compared to pension operators in some advanced economies.

For instance, Norway's Government Pension Fund Global (GPFG) logged a loss of 14.1 percent and the Netherlands' National Civil Pension Fund ― frequently referred to as ABP in Dutch acronym ― posted a 17.6 percent loss.

Even so, concerns remain over the effective operation of the fund as the NPS' return rate on investment was lower than its peers in the OECD, when it came to the yearly average for the past 10 years.

During the cited period, the NPS had a return rate of 4.7 percent, as compared to 10 percent by Canada Pension Plan (CPP), 7.7 percent by California Public Employees' Retirement System (calPERS) in the United States, 6.7 percent by Government Pension Fund Norway (GPFN) and 5.7 percent by Government Pension Investment Fund (GPIF) in Japan.

The Korean pension operator's performance is concerning, especially at a time of rapid depletion of the fund. In its updated forecast in January, the NPS announced that the fund, which was worth 890.5 trillion won as of 2022, will be fully drained in 2055.

The forecast is made every five years. The NPS previously said the fund will be depleted in 2057.

President Yoon Suk Yeol speaks during a Cabinet meeting as Cabinet members listen at the presidential office in Seoul's Yongsan District, March 7, five days after the National Pension Service announced its worst investment loss. The president requested special measures to improve the NPS' investment return rate in a separate meeting with his aides, March 6. Yonhap

"Efficient management of the fund is extremely important as raising the return rate by one percentage point can delay depletion of the fund by five years," an official at the Ministry of Health and Welfare, which oversees the NPS, said on condition of anonymity.

Under the circumstances, some experts hinted that the location of the NPS headquarters in Jeonju, which is 194 kilometers south of Seoul, is possibly the reason behind the less-than-satisfactory operation of the fund.

They noted that a total of 164 NPS staff who worked on the fund's operation have quit since 2017 when it moved its headquarters from Seoul to Jeonju in the name of the government's balanced regional development.

Although it is a major provincial city, Jeonju is considered a remote area when it comes to building networks and gathering up-to-date information on finance.

And those who quit the NPS referred to such an unfavorable working environment as a major reason for their departure.

"The return rate in the private equity market depends on how much advanced information you have to make profits through your network, but it is extremely tough for NPS investment professionals to maintain such networks from Jeonju," a Seoul-based investment banker said.

To make things worse, the average annual salary of NPS investment professionals is only around 50 percent to 70 percent of that paid by private investment companies, many of which are located in Seoul.

The optimal number of employees for the NPS to efficiently manage the fund is 365. And due to the workforce shortage, each NPS investment professional remaining is in charge of operating more money than they are supposed to.

"The circumstances faced by the NPS indicate that it is time to discuss moving the NPS' fund operation division back to Seoul," said Institute for Global Economics Chairman and CEO Jun Kwang-woo who formerly chaired the NPS from 2009 to 2013.

He said he wanted to have the fund operation division remain in Seoul during his NPS chairmanship but his plan was not realized due to political reasons.

The demand to relocate the fund's operation division gained momentum after President Yoon Suk Yeol asked to "bring out special measures" to improve the NPS' investment return rate.

Yoon's demand came during a meeting with presidential aides on March 6, in line with his push for three major reforms: labor, education and the pension system.

Despite the presidential office's denial, some sources said that the president is considering the feasibility of a relocation.

The NPS and the main opposition Democratic Party of Korea (DPK) are strongly protesting the idea of relocation, arguing it is against the president's pledge to nurture North Jeolla Province as a financial hub along with Seoul and Busan.

"I checked with the presidential office and the relocation-related idea turned out to be a nonsense," said NPS CEO Kim Tae-hyun,

Yoon Dong-wook, a North Jeolla provincial official responsible for corporate investment, said the provincial government will "take aggressive countermeasures if it senses any change concerning the status of the NPS fund operation."

DPK lawmaker Park Yong-jin held the presidential office responsible for unidentified news concerning the NPS and asked it "to tighten discipline on presidential officials."