Retirement Pension Shake-Up: Yield Gap Drives Money Move from DB and Banks to DC and Securities Firms

Deposit-Centered DB Reserves Drop by 5.1 Trillion Won in Q1
Funds Shift to ETF-Focused DC Products at Securities Firms
Clear Gap in Returns: DB at 2-3% Annually vs DC at 22-23%
Securities Firms Attract More Clients with Diverse ETF Offerings and Real-Time Trading

The money move trend in the retirement pension market, long dominated by banks, is becoming increasingly pronounced. A significant portion of the reserves that left banks in the first quarter of this year flowed into securities firms. This is interpreted as a structural change driven by the growing demand to manage pensions directly in pursuit of higher returns, moving away from deposit-centered products that guarantee principal. Banks are feeling a sense of crisis, recognizing retirement pensions as a future growth engine for securing a core customer base, and are fiercely defending their position.

An analysis of the retirement pension reserve balances for the first quarter of this year, as disclosed on June 16 by the Financial Supervisory Service’s Integrated Pension Portal, shows a clear trend of decreasing defined benefit (DB) products and a flow of funds toward defined contribution (DC) products managed by securities firms. Corporate retirement pensions are divided into the DB type, where the company is responsible for management, and the DC type, where individuals manage their own pension assets directly.

The DB reserves of the 11 banks listed on the portal stood at 98.9002 trillion won as of the first quarter, a decrease of 2.9190 trillion won (2.87%) from 101.8192 trillion won at the end of last year. Securities firms (14 in total) also saw a decrease from 46.7424 trillion won to 44.5222 trillion won during the same period, a drop of 2.2202 trillion won (4.75%).

A significant portion of these outflows moved into DC retirement pensions. DC reserves increased for both banks and securities firms, but banks only recorded a rise of 943.0 billion won. In contrast, securities firms saw a total inflow of 5.1894 trillion won, marking rapid growth of 13.55%. As a result, the total corporate retirement pension reserves (DB plus DC) decreased by 1.9760 trillion won at banks and increased by 2.9692 trillion won at securities firms. This means securities firms absorbed a significant portion of the fund shift.

A similar trend was observed in IRP (Individual Retirement Pension) accounts. Bank IRP reserves increased by 5.5 trillion won (7.08%), while securities firms posted a larger increase of 7.2 trillion won (15.5%), surpassing the growth seen at banks.

The movement of funds from banks to securities firms is an outcome of the retirement pension market paradigm shifting from DB-centered principal and interest-guaranteed products to DC-centered non-principal-guaranteed products. For DB-type pensions managed by companies, most funds are placed in principal-guaranteed products such as time deposits, due to concerns about principal loss, resulting in annual returns of only 2-3%. In contrast, DC-type pensions have seen a surge in demand for employees to manage their pension assets directly, as non-principal-guaranteed products—such as ETFs—have yielded returns as high as 22-23% amid a strong domestic stock market.

In this process, demand shifted to securities firms, which offer a broader range of products such as ETFs and eligible target date funds (TDFs), and which allow for real-time trading. The introduction of the 2024 retirement pension in-kind transfer system, which allows clients to transfer holdings to another financial institution without liquidating them, also appears to have influenced fund flows. Securities firms seized this opportunity by launching aggressive marketing campaigns, such as waiving management and asset management fees for non-face-to-face transfers.

Retirement pensions are long-term investment funds that remain on deposit for extended periods. For banks, they have been regarded as a core business for securing a long-term customer base. However, concerns are being raised that this structural outflow trend could shake the foundations of banks’ business operations.

Banks are introducing various strategies to prevent customer attrition. KB Kookmin Bank and Hana Bank have introduced real-time price inquiry functions within their mobile apps and overhauled their non-face-to-face product transaction services. Shinhan Bank has expanded its ETF product lineup from around 190 last year to over 240 recently. Woori Bank is providing retirement pension portfolios selected by experts.

An official from the banking sector stated, "Although the returns of DC non-principal-guaranteed products do not differ significantly between securities firms and banks, there is a trend of active migration to securities firms due to operational convenience and other factors. Therefore, in addition to strengthening product lineups, improvements to systems enabling real-time trading are necessary."

This content was produced with the assistance of AI translation services.