South Korea's government said it plans to ease rules on pension fund management and force all companies to enroll employees in private retirement plans by 2022 as it bids to improve incomes among senior citizens.
The new measures might more than double the size of privately managed pension funds to 170 trillion won ($168 billion) by the end of the decade, from 80 trillion won at the end of 2013, Deputy Finance Minister Jeong Eun Bo said. Only 16% of companies are using private pension plans even though they've been allowed since 2005, the ministry said. Following the changes, pension fund managers will also be able to adopt more aggressive investment strategies.
By enforcing enrollment, the government is trying to boost seniors' income as the state-run 436 trillion won National Pension Service, Seoul, is by itself insufficient for retirement living, the ministry said. While companies are required to provide severance benefits to employees, many opt for a lump-sum payout that fails to provide an income because it gets used up quickly, Mr. Jeong said.
“The government plan will help invigorate the overall capital market of Korea, as brokerages, asset managers and banks will all benefit from the expanded business,” said Heo Pil Seok, CEO at Midas International Asset Management in Seoul, which manages $10 billion.
While 76% of companies with more than 300 employees already have private pension plans, the majority of smaller companies don't, according to the finance ministry. Under the new rules, the number of people enrolled in private pension funds will increase 44% to 7 million by the end of 2020 from 4.85 million at the end of 2013, the ministry said.
Starting next year, pension fund managers will be allowed to invest up to 70% of assets held in defined contribution-type plans in risky assets, up from 40% now. The limit for defined benefit-type funds will remain unchanged at 70%, according to the ministry.