Six in 10 Pension Accounts Earn Returns Barely Keeping Pace With Inflation [Retirement Asset Polarization] (2)

Stuck in the 2% range... far below the National Pension Service

Driven by an “all-in” on principal-and-interest-guaranteed products

Default option management needs to improve

In the era of “investment-oriented pensions,” differences in individuals’ investment circumstances are leading to a widening gap in retirement assets. Defined benefit (DB) plans, which do not allow individuals to choose their investments, are heavily weighted toward principal- and interest-guaranteed products. The share of these products is also high in individual retirement pension (IRP) and defined contribution (DC) plans. In some cases, principal- and interest-guaranteed products have even yielded returns below the rate of inflation. Some say that measures such as improving the default option system are needed to change this structure.

An analysis by The Asia Business Daily of the top provider in each sector for retirement pension (DB, DC and IRP) assets, based on the Financial Supervisory Service’s Integrated Pension Portal, found that roughly six in 10 people invest in principal- and interest-guaranteed products. Of the three providers’ combined assets of 164.5772 trillion won, 59.4%, or 92.863 trillion won, was invested in such products. Samsung Life Insurance had the highest share of principal- and interest-guaranteed investments relative to its total assets, at 77.9%, followed by Shinhan Bank at 67.3% and Mirae Asset Securities at 28.9%. At Mirae Asset Securities, the share of principal- and interest-guaranteed products was lower, in the 23% range, for DC and IRP plans, but stood at 75.2% for DB plans.

The difference in returns was also pronounced. For DC plans, Shinhan Bank members’ 10-year return was 2.21% for principal- and interest-guaranteed products and 6.21% for non-guaranteed products. The respective figures were 2.35% and 6.11% at Mirae Asset Securities, and 2.64% and 6.16% at Samsung Life Insurance, a gap of up to about 2.8 times. Compared with the National Pension Service’s (NPS) average return over the past 10 years of 8.21%, returns on principal- and interest-guaranteed DC products at these providers lagged by as much as 3.5 times. The gap widened to more than seven times compared with the NPS’s return of 18.82% last year, its highest on record.

In fact, this investment tendency has separated the top and bottom 10% of pension returns. According to the Ministry of Employment and Labor’s retirement pension investment white paper, the top 10% earned returns of 19.5% over the past year, investing 84% of their assets in performance-based products. By contrast, the bottom 10% left 74% of their assets in principal- and interest-guaranteed products and earned a return of just 0.5%. Considering last year’s inflation rate of 2.1%, they effectively lost money.

“Individual choice” determines retirement income

The idea of investing pension savings rather than simply accumulating them is gaining ground. The rapid growth of DC and IRP plans, which allow individuals to build their own investment portfolios, demonstrates this trend. Last year, assets in DC plans rose 19.6% from the previous year, while IRP assets increased 32.6%. Both were substantial gains compared with the 6.7% growth in DB assets.

The problem is that investment patterns and returns vary according to individuals’ circumstances and ability to invest. The gap in pension assets is bound to grow between those who actively manage their pensions because they are interested in investing and those who passively choose principal- and interest-guaranteed products or leave their funds untouched. According to a survey of employees’ perceptions of retirement pensions published last year by the Korea Enterprises Federation, 57.1% of respondents said, “I’m interested in managing my pension savings, but I don’t know how to do it.” In addition, 62.8% said pension savings should be managed as safely as possible.

In line with this tendency, South Korea’s retirement pension returns are relatively low compared with those in the United States and Australia. A comparison of retirement pension returns over the five years through 2023 shows that South Korea’s return was 2.42%, compared with 10.12% in the United States and 7.42% in Australia.

Default options introduced, but even these favor “principal and interest”

The reason pension returns are high in countries with advanced pension systems, such as the United States and Australia, is not that individual members are investment experts. These countries actively operate default options, which automatically manage investments when members find investing difficult, lack the means to do so, or otherwise do not make their own investment choices.

The United States’ default option, “QIDA,” invests in target-date funds (TDFs), balanced funds (BFs) and other products, and in principle does not include principal- and interest-guaranteed products. Australia’s default option, “MySuper,” also automatically diversifies investments across a range of assets, including stocks, bonds and real estate. While it offers optional choices with principal- and interest-guaranteed characteristics, regulations classify products that fall short of their benchmarks in annual performance reviews as failed products.

South Korea introduced default options in 2023 to address the passive investment practices of retirement pension members and improve long-term returns. However, according to the Integrated Pension Portal, as of the second quarter of 2026, 82.5% of default option assets, or 46.1028 trillion won, were concentrated in principal- and interest-guaranteed products. The one-year return on ultra-low-risk default options, which mainly include deposits, was just 2.37%. By contrast, high-risk products returned 32.66% and medium-risk products 21.78%, a gap of nearly 14 times at the widest.

Another difference is that, unlike in the United States and Australia, where default options are automatically applied to unattended pension accounts, in South Korea the funds are invested only if members select a product. Some argue that the system’s structure must be changed so that members are not left to make the choice themselves. “The idea is that unattended funds go into default options, but if members have to make a choice within those options for their money to be invested, then it’s not really a ‘default’ in the literal sense of the word,” a pension industry official at a securities firm said. “We should consider changes over the medium to long term.”

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