Government to Overhaul Default Options for Retirement Pensions in the Second Half of This Year

[Financial News] As the Ministry of Employment and Labor (MOEL) pushes forward with institutional reforms in the second half of this year, including the introduction of fund-type retirement pensions and mandatory retirement pensions, it is also overhauling the Default Option (pre-designated investment management system). Measures under review include improving the waiting period for the Default Option to be applied and the product evaluation system, as well as expanding the scope of application to include funds currently excluded from the system.
At a forum titled "Three Years of the Default Option: Conditions for the Success of Fund-Type Retirement Pensions" held at the National Assembly of the Republic of Korea on the 7th, Nam Sung-wook, head of the Retirement Pension and Welfare Division at the Ministry of Employment and Labor (MOEL), stated, "We will also proceed with reforming the Default Option in parallel during the second half of this year." Specifically, institutional shortcomings will be addressed by clarifying the evaluation system for Default Option products, including the waiting period, and expanding the scope of application to include funds that are not currently covered by the system.
However, the position is that parliamentary discussion is necessary to overhaul the overall framework of the system, such as changing the current method under which subscribers directly designate their Default Options or deciding whether to include principal-and-interest-guaranteed products. Nam explained, "The designation method and the inclusion of principal-and-interest-guaranteed products are matters that require a national consensus, at the very least, within the National Assembly of the Republic of Korea," adding, "There were discussions on these two issues in the National Assembly of the Republic of Korea when the Default Option was introduced in 2022."
The concentration of Default Option funds in stable types is also cited as a challenge to be addressed during the restructuring process. According to data presented at the forum, Default Option reserves stood at 53.3 trillion won at the end of last year, representing 19.56% of total Defined Contribution Retirement Pension (DC) and Individual Retirement Pension (IRP) reserves. Of this, the proportion of stable types reached 85.4% at the end of last year and remained above 80%, at 82.5%, at the end of June this year.
The government is also pushing for a comprehensive overhaul of the retirement pension system along with the Default Option. The plan is to institutionalize the principle of prioritizing subscriber interests as a fiduciary responsibility during the introduction of fund-type retirement pensions, while simultaneously mandating retirement pensions, mandating the external accumulation of retirement benefits, and reforming the existing contract-type system.
Nam stated, "The system reform is not just moving toward a fund-based model, but is taking a truly massive turn with the mandatory implementation of retirement pensions and the mandatory external accumulation of retirement benefits," adding, "The second half of this year seems likely to be a period of major upheaval in the retirement pension system."

[email protected] Song Ji-won Reporter