Based on figures gathered by financial news provider Yonhap Infomax, total retirement pension assets to shrink for the first time in six and a half years as the local stock market entered a correction period during the third quarter, which led to a sharp drop in South Korea’s retirement pension returns.
The Bottom Line
- Cumulative returns on principal-and-interest non-guaranteed defined contribution plans dropped from 52.85% in the second quarter to 14.46% at the end of the third quarter.
- Total retirement pension assets across 43 providers declined 2.1% to 542.1214 trillion won (approximately $405.7 billion) at the end of September.
- Individually managed individual retirement pensions and defined contribution plans accounted for 75.3% of the total asset decrease.
Pension Returns Collapse Amid Market Correction
Cumulative returns on individual-directed products had soared from the high teens to the 50% range in the first half of the year. That momentum collapsed in the single quarter of July-September as stock prices corrected, reducing returns to roughly a quarter of their previous levels.
As of September 30, the annual cumulative return for principal-and-interest non-guaranteed products across defined contribution (DC) plans at 11 South Korean securities houses was 14.46%, representing a 38.39 percentage point decline from the previous quarter’s ending figure of 52.85%.
Over that same timeframe, individual retirement pensions (IRPs) also saw returns on principal-and-interest non-guaranteed assets decrease by 32.78 percentage points, sliding down from 46.97% to 14.19%. Defined benefit (DB) plans, where companies manage the assets, saw returns decline from 11.35% to 3.86%.
| Pension Plan Metric | End of Q2 | End of Q3 | Quarterly Change |
|---|---|---|---|
| DC Plan Non-Guaranteed Return | 52.85% | 14.46% | -38.39%p |
| IRP Non-Guaranteed Return | 46.97% | 14.19% | -32.78%p |
| DB Plan Non-Guaranteed Return | 11.35% | 3.86% | -7.49%p |
| Total Retirement Pension Assets | 553.8779 trillion won | 542.1214 trillion won | -11.7565 trillion won |
Total Assets Shrink for First Time Since 2020
Figures from the Financial Supervisory Service’s Integrated Pension Portal reveal that the aggregate assets managed by 43 retirement pension providers reached 542.1214 trillion won (approximately $405.7 billion) at the close of September, marking a decrease of 11.7565 trillion won (approximately $8.8 billion) compared to the 553.8779 trillion won (approximately $414.5 billion) recorded at the end of June. Assets declined for the first time in a quarter since Q1 2020.
Individual retirement pensions posted the largest decrease at 5.0129 trillion won (approximately $3.8 billion). Defined contribution plans decreased by 3.8374 trillion won (approximately $2.9 billion), and defined benefit plans fell by 2.9062 trillion won (approximately $2.2 billion).
Combined, the declines in individually managed individual retirement pensions and defined contribution plans totaled 8.8503 trillion won (approximately $6.6 billion), representing 75.3% of the overall decrease.
Workaround Products Drive Volatility Exposure
At the close of the second quarter, defined contribution plans accounted for 29.5% of all retirement pension assets—up from 28.2% at the end of the previous year—while individual retirement pensions grew from 26.1% to 30.0%. Together, these two individually managed types accounted for 59.5% of the market, surpassing defined benefit plans at 40.5%.
Subscribers actively used bond-mixed exchange-traded funds (ETFs) and target date funds (TDFs) to capture gains during the stock market rally in the first half of the year. Under retirement pension regulations, bond-mixed ETFs meeting safe-asset requirements are classified as safe assets despite holding stock components, exempting them from the 75% risk-asset investment limit.
FnGuide statistics indicate that target date funds held within retirement pension portfolios delivered an average quarterly return of -7.8% during the third quarter, representing a 26.0 percentage point reduction from the 18.2% yield seen in the preceding quarter. Bond-mixed ETFs holding semiconductor equities dropped even further, as the “KODEX Samsung Electronics SK Hynix Bond-Mixed 50” and “RISE Samsung Electronics SK Hynix Bond-Mixed 50″—both listed on April 7—each fell 10.71% between June 30 and September 30.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
