The National Pension Service has announced it will diversify its investment portfolio by actively targeting overseas markets over the next five years, as part of its efforts to raise fund management profitability.
Under its plan for the period 2017-21, the proportion of the state pension fund’s investments that are made in global stocks will rise to around 25 percent in 2021 from 13.7 percent in 2015. The overseas bond portfolio will also increase to 5 percent from 4.3 percent over the period.
The NPS said it aims to reap 5 percent average return from investments in 2017-21, while the fund’s investment return stood at 4.57 percent last year.
It is desirable for the world’s third-largest public pension fund to seek diversification of investment targets amid a warning from the Finance Ministry in late 2015 that the cash held by the NPS could be exhausted by 2060 after starting to see a deficit from 2044.
The government predicts that the deficit scale will rapidly expand in the coming decades when the number of insurance beneficiaries surpasses that of those paying premiums.
That prospect has deepened anxiety, with more than 80 percent of respondents in a recent survey expressing worries that they would be paid less or nothing at all through the national pension when their subscription matures.
Public skepticism over the potential benefits from the service have amplified over the past few years amid speculation that the ruling party was seeking to divert part of the pension fund to finance an entitlement program for senior citizens aged 65 or older.
Some had raised the need for the government to guarantee pension payments to help quell the increasing public distrust and ensure the stable management of the service.
Lawmakers on the parliament’s welfare committee had endorsed a bill revising a related law to introduce the measure involving a state guarantee. However, the bill became stuck in the legislative process, due to objections from Finance Ministry officials and some ruling party legislators.
Amid mounting public anxiety, it seems that the government is seeking to raise the monthly premiums for NPS policyholders. Some officials are leaning toward the Organization for Economic Cooperation and Development’s advice to pull up the ratio of premiums to income (of salaried workers in particular) from the current 9 percent. The OECD cited the need to do this to maintain the state fund’s sustainability.
But the government could face a public backlash if it pushes to increase premiums without convincing the public of the reason for doing so.
According to financial consumer advocates, the large sums of money invested by the NPS in the domestic stock market sometimes acts as a barrier hampering the gains of the KOSPI and KOSDAQ.
A ruling party lawmaker earlier noted that small investors suffer huge losses after the NPS lends stocks to institutional investors that are then used for short-selling. Institutions can reap gains by dumping borrowed stocks and repurchasing them at lower prices later, and some are accused of using buy and sell advisories to encourage this to happen.
The government should ensure that public trust in the NPS is high before it begins to demand higher premiums from workers.
