"Is Saving Enough for Retirement?"... Challenges Raised for Korea's Pension System

Natixis Investment Managers Highlights Need for Pension Investment Shift in Korea

Retirement Index: Korea Ranks 2nd in Finance, 40th in Quality of Life

Defending Purchasing Power through Diversified Investment

Emphasis on Professional Management and Life-Cycle Investing

An analysis has suggested that in order to supplement old-age income in Korea, it is necessary not only to raise pension contribution rates but also to carefully consider how accumulated assets are managed. Natixis Investment Managers (NIM), a French-based global asset management company, assessed that, even after Korea's pension reform, it is essential to broaden the focus from simply saving to investing in order to secure sufficient retirement income.

Recently, NIM highlighted this in its '2026 Global Retirement Index (GRI)' report, evaluating South Korea's pension reform in the previous year. According to the report, although South Korea has decided to increase its pension contribution and replacement rates, additional effort is required to sufficiently secure post-retirement income. The replacement rate refers to the proportion of pension received compared to pre-retirement income.

Post-Reform Challenges: How Should Accumulated Funds Be Managed?

The report, citing Organisation for Economic Co-operation and Development (OECD) data, pointed out that about 40% of Koreans aged 66 and over live on less than half of the median household income. This is the highest elderly poverty rate among OECD member countries. Adding to this, rising prices have made it increasingly important not only to focus on how much is accumulated for retirement, but also on how to maintain the value of those assets over time.

In the latest Global Retirement Index, Korea ranked 20th out of the 44 countries surveyed. This is two places higher than the previous year, but the overall score remained the same at 69%. By category, Korea ranked 2nd for retirement-related financial conditions and 10th for material wellbeing, while ranking only 40th for quality of life. The financial conditions score comprises indicators such as inflation, interest rates, and government debt; it does not directly reflect the adequacy of personal retirement savings. NIM and CoreData Research evaluated countries' retirement conditions based on 18 indicators across four categories.

A NIM representative responded to a related inquiry from The Asia Business Daily, stating: "The key question is whether simply ‘saving’ is enough to guarantee a stable retirement. Today's high inflation environment clearly demonstrates the importance of maintaining real purchasing power after retirement."

The representative also emphasized that diversifying investments across various asset classes is a way to counter the loss of purchasing power caused by inflation. It is necessary to manage pension assets in capital markets to pursue returns that outpace inflation and to supplement income after retirement.

Investing Pension Assets in Companies... Risk Management by Age

France and the United Kingdom were mentioned as cases where pension subscribers' investment opportunities were expanded. France integrated several retirement savings products into the retirement savings plan (PER) system and encouraged funds to be used for corporate financing, including through stocks and private credit. The goal is to supplement subscribers' retirement income while supplying long-term investment capital to companies.

According to the report, as of the end of the third quarter last year, there were 12.7 million PER subscribers and assets totaling 141 billion euros (about 21.7 trillion won). Over 60% of all assets were invested in corporate financing via stocks and private credit, with investment in unlisted assets exceeding 5 billion euros (about 800 billion won).

In the United Kingdom, the 'Mansion House Compact'—participated in by 17 major pension providers last year—set a voluntary target to invest 10% of key defined contribution (DC) default fund assets in private markets by 2030. Five percent of these default fund assets are to be allocated to private assets within the UK. A default fund is a basic investment product applied when the subscriber does not select a specific investment product.

Commenting on the examples from both countries, a NIM representative said, "We are exploring ways to provide capital market investment opportunities to retirement pension subscribers, helping them to form pension assets that can meet their long-term financial needs."

Methods for managing risks according to the age of the subscriber were also discussed, as the management approach required is different for subscribers nearing retirement compared to those with significant saving years remaining. Target date funds (TDFs) are products that adjust the allocation between stocks and bonds as the target retirement date approaches.

The roles of policymakers, companies, and individuals in ensuring stable retirement were also highlighted. Policy should broaden the coverage of pension systems, companies should introduce and support workplace pension systems, and individuals should participate proactively in these programs.

A NIM representative added, "While the way these cooperative systems operate differs greatly across countries, the fundamental goal is the same: to offer individuals the best possible opportunities to achieve a stable retirement."

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