The return rate of retirement pension offered by South Korea’s banks and insurers dropped to the zero percent level in the third quarter (Q3), sounding an alarm bell for subscribers of retirement fund scheme

October 30, 2013 Leave a comment

Retirement pension rings alarm bell

Kim Yoo-tae

2013.10.27 12:49:53

The return rate of retirement pension offered by South Korea’s banks and insurers dropped to the zero percent level in the third quarter (Q3), sounding an alarm bell for subscribers of retirement fund scheme. The decline largely came as financial firms are struggling to make profit from asset management with the prolonged period of low interest rates. However, in this circumstance, subscribers should be more active in managing their fund for their later life, experts pointed out. Return rate of Defined Benefit (DB), Defined Contribution (DC) and Individual Retirement Pension (IRP) types retirement pension provided by 15 banks fell below the one percent level in Q3 this year. Pension fund that guarantees principal and interest comprises of 93 percent of the total.

As for DB type retirement pension which guarantees principal and interest, return rate declined an average of 0.2 percentage point from 1.13 percent to 1.15 percent in the same period a year ago with Kookmin Bank 0.92 percent, Woori Bank/ Shinhan Bank 0.93 percent and Hana Bank 0.94 percent. As for DC type which guarantees principal and interest, return rate provided by Standard Chartered and Suhyup slipped to 0.79 percent and 0.88 percent, each. Regarding IPR type, none offered the return rate of over one percent.
Things are much worse with the return rate of retirement pension provided by insurance companies. Excluding the one offered by Heungkuk Life, Hanwha Life and Tong Yang Life Insurance, the quarterly rate offered by nine life insurers went down to the zero percent level.
The return rate offered by mid and small-sized non-life insurers including Hanwha General Insurance dropped to the 0.6 percent level. This means the annual return rate for the year stays at the mid-range of two percent.
Lee Sang-woo, senior researcher at the Korea Insurance Research Institute noted, “insurers need to diversify their asset management portfolio amid downturn trend of interest rates,” adding “whether they are DB or DC types, subscribers tend to do little with their retirement fund, so their focus on retirement fund should be shifted from ‘mere saving’ toward ‘active investment’.

Filed under Macro Trends

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