[Why&Next] Lee Hyungil Orders Acceleration of Fund-Type Retirement Pensions... Why Has the Transfer of 500 Trillion Won in Reserves Been Delayed for Three Months?

Key Issue: Whether to Allow Transfer of Existing DC Pension Funds

Financial Authorities Focus on Participant Protection, Labor Unions on Economies of Scale

Restructuring of Financial Institutions' Roles, Management Concerned Over External Fu

The government is failing to accelerate the development of detailed guidelines for the introduction of fund-type retirement pensions. The plan was originally to finalize the draft of the system by July, but as of the end of this month, no conclusion has been reached, pushing the schedule back by about three months. This delay is due to a standoff between financial authorities and labor unions regarding whether to allow the transfer of existing defined contribution (DC) reserves to the fund-type system. There are concerns that if discussions drag on, this could affect the legislative schedule for legal amendments within the year.

Deputy Prime Minister and Minister of Finance and Economy Lee Hyungil attended the full meeting of the Fiscal Planning Committee held at the National Assembly on the 22nd. On that day, Deputy Prime Minister Lee reported the progress and detailed contents of the investment negotiation with the United States in a closed session. September 22, 2026 Photo by Yoon Dongju

According to relevant ministries on September 29, Deputy Prime Minister and Minister of Finance and Economy Lee Hyungil discussed ways to improve the retirement pension system with the Ministry of Employment and Labor and the Financial Services Commission at his first economic briefing on September 27 after taking office. This is interpreted as a sign that differences of opinion surrounding the fund-type system can no longer be postponed. The government is pursuing the adoption of the fund-type structure in order to manage the 553 trillion won in retirement pension reserves as of the second quarter of this year more professionally and over the long term to increase income in old age. Currently, the contract-based system is dominant, where companies enter into individual contracts with banks, securities firms, and insurance companies. In the fund-type system, reserves from multiple workplaces are pooled and managed collectively by a professional management organization. The government explains that as the size of the reserves grows, economies of scale can be utilized through asset diversification and the expansion of long-term investments.

After the tripartite government-labor-management declaration in February, the government established a working group that includes the Ministry of Strategy and Finance, the Financial Services Commission, labor and management, and experts. Although the original plan was to establish detailed guidelines for each type by July and pursue legislative amendments within the year, discussions on major issues are still ongoing.

Clash Between Financial Authorities and Labor Unions Over Transfer of Existing DC Reserves

The biggest issue is whether to allow participants' existing defined contribution (DC) reserves to be transferred to the fund-type system. The fund-type retirement pension system is not intended to replace the contract-based system, but to implement both systems in parallel. The financial authorities are cautious about easing regulations on contracts and transfers of financial products during the transfer of existing DC reserves to the fund-type system. They point out that granting exceptions could undermine regulatory fairness among financial products and that the process of management could also present problems for participant protection.

On the other hand, labor unions argue that blocking the transfer of existing reserves could undermine the purpose of introducing the fund-type system. The core of the fund-type approach is to pool reserves from multiple workplaces, achieve economies of scale, and increase returns through professional asset management. If only new participants join the fund-type and existing participants remain, it will be difficult to secure a sufficient pool of funds from the start. In addition, the labor side insists that special provisions must be created to ensure no disadvantages for participants if their existing DC reserves are transferred to the fund-type system. Ryu Jekang, Director of Policy Division 2 at the Korean Federation of Trade Unions, said, "The introduction of the fund-type system should not become an end in itself; practical worker protection, such as resolving overdue retirement payments and expanding benefit rights, must be considered carefully."

Restructuring of the Financial Sector’s Role and Burden on SMEs

The restructuring of the roles of financial institutions that have managed retirement pensions is also inevitable. Under the current contract-type system, banks, securities firms, and insurance companies serve as service providers. However, with the introduction of the fund-type system, a separate trustee company will be able to manage reserves collectively, leading to greater competition. The financial sector expects that the role of private sector operators will shift from product sales to asset management, client management, and performance management. Some point out, however, that if both systems coexist, differences in fee structures may make the transition to the fund-type system less attractive.

The business community agrees with the purpose of introducing the fund-type retirement pension system but says a phased approach and support measures are needed to consider the financial burden on small and medium-sized enterprises (SMEs). Many small businesses use their retirement funds as working capital, so the sudden obligation to make external reserves could increase labor costs and worsen liquidity. Lee Sangcheol, Director of the Employment and Social Policy Division at the Korea Employers Federation, said, "A large number of small businesses suffer from chronic liquidity constraints," and added, "Policy support is needed to minimize side effects such as workforce adjustments." According to the Korea Federation of SMEs, businesses with fewer than five employees account for 62% of all companies, but the adoption and participation rate for retirement pensions remains at about 10%.

For the government, the challenge is to find common ground between tripartite consensus among labor, management, and government and the discipline of the financial market. The Ministry of Employment and Labor is focusing on strengthening trustee responsibilities and making external reserves for retirement pay mandatory, including the adoption of the fund-type system. Meanwhile, there are reports that some in the government are considering introducing the fund-type system, initially focusing on new participants in recognition that not many workers may be willing to move to the fund-type system. A government official stated, "We are examining a variety of approaches to ensure that the institutional mechanisms for both the existing defined contribution and the fund-type systems function effectively."

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