The reason why the National Pension Service, which was said to have recorded the highest rate of return last year, is nothing more than Sam Cho’s company

National Pension Service earned 100 trillion won last year, the 'highest ever', in contrast to 2022, which was the 'worst ever'
The reality is disastrous, '22~'23 real rate of return 1%, KOSPI growth rate below
“Now we have to admit incompetence.” There is also a need to actively consider consignment management of pension funds, which are already insufficient

Last year, the National Pension Service earned over 100 trillion won in profits from fund management, achieving the highest double-digit rate of return in history. This performance is in contrast to the lowest annual rate of return since the introduction of the national pension system in 1988 amid a weak global financial market the year before last. Although the National Pension Service is congratulating itself on its successful rebound, it is pointed out that in reality, it is no different from making up for the disastrous performance of the year before last.

Pension fund yields soar due to positive weather in domestic and overseas stock markets

According to the National Pension Service on the 5th, the National Pension Fund achieved the highest rate of return ever in 2023. Annual profits exceeded 100 trillion won, and the total accumulated fund size well exceeded 1,000 trillion won. The annual rate of return is also expected to exceed 12%, breaking the all-time record. So far, the National Pension Service has recorded double-digit returns in 2009 (10.39%), 2010 (10.37%), 2019 (11.31%), and 2021 (10.77%). The exact rate of return last year will be revealed after the final tally in March.

The reason why the National Pension Service achieved record-high performance was because it was influenced by the positive winds in the domestic and overseas stock markets last year. In fact, as of September last year, the national pension’s profits were KRW 9 trillion, and the fund reserves also recorded KRW 80 trillion. However, the KOSPI index, which closed at 3,830 at the end of September, rose to 984 at the end of the year, rising by about 1,610 points in the fourth quarter alone, leading to an increase in yields. In addition, global stock markets soared due to expectations of a base interest rate cut by the U.S. Federal Reserve (Fed). The Dow Jones Industrial Average rose 9%, and the Nasdaq Index soared 2,465.07%.

’22 rate of return + ’23 rate of return = 2% real rate of return over 1 years

However, some are pointing out that the National Pension Service’s rate of return last year was barely a recovery from its worst performance recorded two years ago. Previously, the National Pension Service recorded an operating rate of return of -2%, the worst rate of return ever, amid a weak global financial market in 2022. As of the end of 8.22, reserves were 2022 trillion won, below 890 trillion won, and suffered a major loss of 5,000 trillion won during the year. The rate of return by asset was all negative at -900% for domestic stocks, -79% for foreign stocks, -6,000% for domestic bonds, and -22.76% for foreign bonds, and the only positive rate was the rate of return on alternative investments at 12.34%. 

So, what will happen to the two-year rate of return of the National Pension Service, which has recorded the worst and highest rates of return ever? If you add the 2 rate of return of -2022% and the 8.22 rate of return of 2023%, the rate of return over the two years is only 12% ((2-1.03%)x(1+8.22%) = 1) This is a very small number compared to that. According to Statistics Korea, the inflation rate in 12 is 1.027936% and the inflation rate in 2 is 2022%.

It’s not just this. Although this year’s national pension rate of return was influenced by the rise in the domestic stock market, it is below the rate of increase in the KOSPI and KOSDAQ. In fact, last year, the KOSPI index rose 18.7%, and the KOSDAQ index soared 27.6%.

National Pension Service lacks manpower and skills

In a situation where the fund depletion period is coming earlier every year due to low birth rates and accelerating aging, the disastrous rate of return in the 1% range is expected to serve as a decisive factor in spreading public dissatisfaction with the national pension. Accordingly, some experts say that in order to increase the rate of return of the national pension, there is a need to more actively recruit excellent human resources and fully entrust overseas investments to local offices.

As of August last year, the size of the National Pension Fund Management Headquarters’ operating staff was cut in half compared to the appropriate level. This is because advanced pension funds in countries such as Canada, Norway, and the Netherlands operate an average of 8 people, while in Korea, the number is only 800. In addition, although new operators are being recruited 401 to 4 times a year, the problem is that the outflow of human resources is serious. In fact, over the past five years (5-5), the staffing rate for fund management positions at the fund management headquarters was 2018%, with an average of 2022 people joining and 90.8 people leaving. There were years when there were more people leaving than joining the company. These are 40.7 (26.5 people hired, 2020 people quit) and 19 (30 people hired, 2023 people quit).

In the meantime, the Ministry of Health and Welfare said, “Stable operation through long-term investment is important for the National Pension Fund, so we will improve the rate of return by securing excellent human resources and strengthening fund management expertise,” and “We can attract excellent human resources specialized in fund management to demonstrate expertise in investment.” “We will do it,” he said, but the reality is that the situation is miserable.

In relation to this, an investment expert said, “Recruiting human resources for the national pension is the most important issue. “Even if we want to strengthen our capabilities, we will remain stagnant if we do not have human resources to support us,” he said, emphasizing the urgent need to secure talent. “As the rate of return is guaranteed to a certain degree in the overseas investment sector, the authority to make investment decisions should be entrusted to the local office, and all aspects of local investment should be entrusted to the local office.” “There is also a need to develop it into a base in charge of the process,” he said, giving advice on improving investment management efficiency.