National Pension
to Be Revamped

The NPS launches out on innovative steps with the pending revision of the National Pension Act.

The national pension is set to undergo tremendous changes with the revision of the National Pension Act currently pending at the National Assembly.
The National Pension Service (NPS) is also putting into action a wide range of innovative steps, ranging from the operation of the fund to the way services for beneficiaries are offered.
NPS President and CEO Kim Ho-shik said, "Departing from a stable fund operation structure centered on investment in bonds, the NPS is shifting its policy toward gradually expanding into long-term, high-profit investment portfolios of securities and other alternatives." "The NPS is diversifying its investment portfolios to such sectors as social overhead capital projects, private equity funds, BTL projects and real estate in a bid to prop up profits from the operation of the fund, while expanding its overseas investments and increasing the rate of investments entrusted to outside financial institutions from 10.2 percent in 2006 to 15 percent this year's NPS CEO Kim said in an interview with NewsWorld.
NPS President Kim also touched on other issues, including the amendment bill of the National Pension Act and the NPS'new vision "Share Hope 2020."The following are excerpts from his interview.
Question: Would you speak about how to improve the operation of the pension fund?
Answer: At the end of January 2007, the accumulated pension amount stands at 190.3 trillion won, which is formed of 120.6 trillion won in contributions and 69.7 trillion won in profits arising from the operation of the pension fund. Due to the recent continued long-term low-interest rate trends, the profit rate from the operation of the fund is showing signs of decline. Still, in general, the rate of return on investment of the national pension fund can be considered high.
The scale of the pension fund surges exponentially. However, amid long-term low-interest rate trends, the rate of return from operating fund, which is highly depending on the share of investments in bonds, has begun to show signs of decline. The NPS has been painstakingly studying ways of raising the profit rate to alleviate the burden of contributors and beneficiaries in the next generation on pension contributions and ensure a long-term financial stability.
Departing from a stable fund operation structure centered on investments in bonds, the NPS is shifting its policy toward gradually expanding into long-term, high-profit investment portfolios of securities and other alternatives. We decided to increase the investment share in stocks by 4.4 percentage points from 12.0 percent in late 2006 to 16.4 percent by the end of 2007. The investment portfolio of the pension fund is diversified into such sectors as social overhead capital projects, private equity funds, BTL projects and real estate.
The NPS plans to expand overseas investments with the goal of alleviating its influence on the domestic financial markets and stabilize returns in the long term through risk management. We aim to raise the rate of overseas investments to total assets from 9.4 percent, which is 17.7 trillion won at the end of 2006, to 10.3 percent by the end of 2007 with a focus on investing in stocks and other alternatives.
We have decided to increase the rate of investments entrusted to outside financial institutions from 10.2 percent in 2006 to 15 percent this year in a bid to manage the fund by experienced financial specialists. On top of these steps, the NPS has been increasing the number of staff members to brace for a rapid growth rate of the fund and diversification of investments into foreign markets with a view to raising management operation efficiency and profitability of the fund.
Q: Would you elaborate on the major tasks the NPS will undertake and the 2007 business plan?
A: To celebration of its coming-of-age this year, the NPS has set its main business goal in 2007 as upgrading customer-oriented management to highest levels. To this end, it plans to implement nine major tasks under three principles ― customer satisfaction, capability strength and culture system. First of all, in an effort to meet its customers'demands, the NPS will reorganize business systems based on the Information Strategy Planning it completed last year. It is designed to dramatically cut down on administrative and maintenance expenses and provide convenient pension-related services to beneficiaries. A quality of service will be provided to elderly and physically handicapped pensioners for their convenience including that our employees visit wherever they want in person when they apply for benefits, submit an application for change in personal information, receive consultations on the payment of benefits as well as accompany them to the medical treatment facilities.
The NPS is striving to devote its energies to strengthen the core capabilities to brace for rapidly changing external business circumstances and explore new business areas.
We will aggressively work to explore new businesses in the areas where our roles are required more such as payout services, consultations on successful ageing and investment projects catering to pensioners. The organization in charge of the fund management will become more professional so that the investment portfolio of the pension fund can be diversified continuously while increasing overseas investment. At the same time, we will work hard to establish welfare investment projects such as rental housing and large-scale silver town construction from the long-term perspective since they are designed not only to improve the welfare of contributors and beneficiaries but also to explore new business areas.
The NPS tries to do its best to enhance transparency of the pension fund management and make it open by institutionalizing personnel, finance and asset management to establish an organizational culture in the manner of a matured institution.
Q: Would you summarize the NPS'new vision: Share Hope 2020?
A: We have worked out our vision "Share Hope 2020"since we drew it up by sounding out all of our views in September 2006. This vision will be a business guideline for directing the national pension until 2020 with the goal of proactively coping with external and internal business environment which demands diverse pension services as well as changes and innovations.
At the same time, Share Hope 2020 is a plan to develop long-term strategies designed to establish the NPS as a world-class social security institution with the mission of "Making Your Old Age Happier Together with People."The vision is composed of nine core strategies and 23 action plans, based on three principles ― customer satisfaction, capability strength, culture system.
This vision is designed to offer various related services; offer job plans to survivor pension claimants; provide rehabilitation plans to disability pension claimants; implement investment projects for leisure, convalescence, housing and funeral businesses; and give old age preparation plans to old age pension claimants. In addition, it focuses on customer-oriented organizational innovation in management systems and human resource development sectors. We hope that the Share Hope 2020 serves to dramatically improve customer service by upgrading major tasks of each year through reflecting demands for diverse services and business environment changes. We also want it to be a cornerstone to build up a foundation for making the NPS and the National Pension Scheme beloved by everyone.
Q: What management tenets do you hold in the operation of the pension fund and what are your innovative key words?
A: My management key words are to pursue change and innovation in a continuous and efficient manner.
The NPS has been implementing strategies such as the "Share Hope 2020" the Innovative Master Plan and Information Strategy Planning (ISP) with the goal of making business processes customer-oriented and innovative to brace for the rapidly changing external business environment and reposition itself as a reliable institution trusted by people. We have changed our English name from the National Pension Corporation (NPC) to the National Pension Service (NPS) in order to emphasize that we places first priority on our customers.
Second, the NPS is putting more energy into improving an organizational culture so that staff members can secure cohesion. On the basis of its core values: customer satisfaction, innovation and pride, the NPS has worked out the new vision "a world-class social security institution with a mission of Making Your Old Age Happier Together with People."On the other hand, it has developed a new corporate identity to build up solidarity among employees.
Third, we are striving to institutionalize management systems in accordance with principles and standards. The NPS has established foundation for sustainable development through completing a strategic management framework and seamless system operation. The NPS is building up infrastructure for organizational operation to ensure autonomous, responsible management by delegating authority which was previously concentrated at the headquarters to lower regional offices. It is also establishing performance-based systems designed to evaluate the outcomes in a fair and rational manner and compensate according to the evaluation.
Q: Would you explain the revision bill of the National Pension Act now pending in the National Assembly?
A: The current national pension scheme is designed for contributors to receive more benefits while pay less contributions. Since Korea is one of the OECD countries suffering from a low birth rate and a rapid aging population, the current pension scheme may confront severe financial problems in 40 years and leave our next generations a huge burden. An objective of the amendment of the National Pension Act, proposed by the government and a ruling party, is to solve these problems.
The revision bill contains two major plans. As a step to maintain long term financial stabilization of the pension fund, contributors'premiums would be raised by 0.39 percentage points each year from the current 9 percent of contributors'average income up to 12.9 percent by 2018, while from January 2008, the income replacement rate would be lowered from 60 percent to 50 percent of contributor's average income. However, the existing beneficiaries would be guaranteed their vested rights. The other plan is to strengthen income security function for old age people as part of an effort to solve a "dead zone"problem. It suggests that from July 2008, population aged over 65, who belong to the 60 percent lower-income bracket, be given 89,000 won or 5 percent of contributors'monthly average income per month.
This Amendment would improve people's rights and convenience. For instance, it contains provisions with regard to abolishing a reduced pension, partially paying contributions in case of the occurrence of duplicated pensions, introducing a birth credit and the credit benefits for the military personnel, eliminating contribution grade system, establishing a deferred pension and revising a divided pension. nw

NPS Chairman and CEO Kim Ho-shik