Korea's national pension fund eyes 20% annual gain, assets seen at 1,473 trillion won

SEOUL, December 29 (AJP) - South Korea’s national pension is expected to post a record annual return of about 20 percent this year, lifting its assets to an estimated 1,473 trillion won, the government said on Monday.

The Ministry of Health and Welfare said preliminary December figures show the fund’s annual return is projected at around 20 percent, surpassing last year’s 15 percent gain and marking the highest level since the national pension system was introduced in 1988.

The ministry attributed the strong performance to robust domestic and global equity markets, with stock investments driving overall returns.

By asset class, preliminary returns were led by domestic equities at about 78 percent, followed by overseas equities at about 25 percent. Alternative investments returned roughly 8 percent, overseas bonds about 7 percent and domestic bonds around 1 percent, the ministry said.

On the back of the gains, the fund’s assets rose to an estimated 1,473 trillion won as of December, up 21.4 percent, or about 260 trillion won, from 1,213 trillion won at the end of last year. The increase is equivalent to about 5.9 times last year’s pension benefit payouts of 44 trillion won.

The final annual return, which will reflect fair-value pricing of alternative assets such as private equity, real estate and infrastructure, is scheduled to be announced in February.

The government said higher premium revenue, depending on future contribution-rate adjustments, could further expand the fund and enable more active investment. The ministry added it plans to raise the fund’s long-term annual return target to 5.5 percent from 4.5 percent by refining its asset-allocation framework and expanding infrastructure, including professional investment staff.

Under revisions to the National Pension Act passed in April, the contribution rate will rise to 9.5 percent next year from 9 percent. Based on the average monthly income of all subscribers, 3.09 million won, monthly contributions will increase by about 7,700 won for workplace subscribers and by about 15,400 won for regional subscribers.

The income replacement rate will also rise to 43 percent from 41.5 percent. For a subscriber with a lifetime average monthly income of 3.09 million won who pays contributions for 40 years starting next year, the monthly pension benefit would increase by about 92,000 won, to 1,329,000 won from 1,237,000 won.