Pension Fund Investment Plans

National Pension Service to expand investments in stocks and reduce bond investment in 2010

The National Pension Fund Management Committee approved the revision of the management plans of the national pension fund for 2009 and 2010 at a meeting held on June 30 led by Minister Jeon Jae-hee of the Ministry of Health, Welfare and Family Affairs.
The revision in the 2009 management plan included a provision that reductions in the pension fund to be invested in domestic stocks from 17 percent of its total investment fund to 15.2 percent and replacement investment from 6 percent to 5 percent so that the reduced portions can be invested in domestic bonds to boost the investment in the bonds to be expanded from 69.3 percent of the total fund to 72.1 percent, the committee said.
The approved management plan for 2010 shows that investments in domestic stocks will be increased to 21.7 percent from 18.8 percent, while replacement investment will be raised to 6 percent from 5 percent while investments in bonds will be cut to 71.9 percent from 76.2 percent, the committee said. The committee figured total income projected for next year would amount to 82.121,6 trillion won and 71.949,8 trillion won left after paying off annual stipends of 10.171,8 trillion won will be used as investment funds.
Of the funds, save the funds collected at maturity totaling 28 trillion won will go to investments in domestic stocks ( 6.9 trillion won), to investments in overseas stocks (4.9 trillion won) to investments in domestic bonds (9.2 trillion won), investments in overseas bonds(1.3 trillion won) and to replacement investments(5.7 trillion won), the committee said. The marginal investment allowance rates by the investment sector for 2010 has been changed to 5 percent for domestic investment in stocks, 1.5 percent for investments in overseas stocks, 8 percent for domestic bonds, 1.5 percent for investments in overseas bonds and 2 percent for replacement investments, the committee said.
To look at the fund allocation, 130.9 billion won has been allocated to welfare sector, corresponding to 0.1 percent of the total fund of 303.628,5 trillion won, 302.282,73 trillion won(99.7 percent) will go to investments in the financial sector including 65.657,2 trillion won in investments in domestic stocks, a 21.6 percent of total fund, with 50.259 trillion won (16.6 percent) destined to be invested in domestic stocks, 15.398,2 trillion won (5.1 percent) allocated to investments in overseas stocks, 20.539,89 trillion won(67.6 percent) in domestic bonds and 12.451,6 trillion won(4.1 percent) in overseas bonds and other areas 670.3 billion won.
In 2010, collection of pension funds and income from the fund's operation would amount to 82.121,6 trillion won, down 0.3 percent from 2009. Income from pension fund insurance is projected at 24.035,4 trillion won, up 3.2 percent from last year.
The projected income from those policies bought at workplaces take up a lion's share at 21.523,8 trillion won, up 4.4 percent from last year, those who bought policies individually totaling 2.511,6 trillion won, down 5.6 percent from 2008. Income from the operation of the funds is projected at 14.221,4 trillion won including 70 million won from the operation of welfare towns, funds provided by the government 226 million won and income from the operation of marginal funds 12.845,9 trillion won.
The National Pension Service will be able to collect investments in bonds and investments through brokerages in 2010 totaling 43.864,8 trillion won including 30.990,7 trillion won in bonds at home and overseas and 12.845,9 trillion won from investments made through overseas asset management firms, the committee said.
In 2010, the committee said the NPS will spend a total of 10.171,8 trillion won including 9.233,5 trillion won in payment of pensions, up 20.1 percent from 2009, 6.869,9 trillion won in pension for retirees, 437 billion won for the handicapped, 1.054,5 trillion won for surviving family members, and 851.1 billion won in one-time payment for retirees.
This means that the NPS will have 71.949,8 trillion won available for investments in 2010, 22,242 trillion won less than those in 2009, the committee said.
The investment funds will be allocated as follows: 21.538,5 trillion won in stocks including 15.253,2 trillion won in domestic stocks and 6.285,3 trillion won in foreign stocks. 44.511,3 trillion won in bonds including 41.115,6 trillion won in domestic bonds and 3.355,4 trillion won in overseas bonds.
The committee said its approval of the fund management plans was based on the economic projection that the world economy would begin to recover as it hit the bottom in 2009, although the economies of advanced countries would make a slow recovery because their financial system recovery and the readjustment in excessive spending would be slow. The emerging economies including that of China would make a rapid resurgence due to their stable financial system and stimulus packages to revive their domestic economies. High unemployment rates and restructuring needed in household finance and corporations would slow the economies to recover in advanced countries, the U.S. in particular.
Also feared are possible inflation due to the economic recovery and huge liquidity brought about by the stimulus packages to revive the economy would push up the commodity prices and thus invite inflation.
Too early recovery of funds released for economic resurgence could slow the pace of the economic recovery and thus the appropriate moves to collect funds back to stop inflation are the key to normal economic resurgence. It would take, therefore, a considerable time for the economies to make a full recovery to the level before the economic crisis set in.
Korea's domestic economy would also make a slow resurgence as it depends a lot on the economic situations in the importer countries of its goods and services, which are a key element for the growth of its economy.
The consumer prices would fall due to an excessive supply of liquidity and moves of economic recovery, but they will soon bounce back and rise again.
The financial market forced the value of financial assets to decline in the first half, the fear that the market would worsen in the first half has been calmed down and the interest rates and the prices of shares bounced back with the economic recovery showing signs of upturn. The stock prices are expected to rise a little, but on a limited scale as the real economy would not be able to make a quick improvement. The volatility of stock prices is likely to increase due to an excess liquidity, inflationary pressure and the possibility for hikes in interest rates. Market interest rates are likely to face a pressure to rise because of an excess liquidity, an expansion in government fund supply, the economic recovery both at home and abroad. But the speed of rise in interest rates would be gradual owning to the slow recovery of the real economy.
In the meantime, the National Pension Service signed an MOU with the Korea Housing Financial Corp. on July 9 to help the Consulting Successful Aging(CSA) to find its place so that it can work to ensure certain amount of income for the retired senior citizens.
President Park Hae-choon of NPS and his counterpart Lim Joo-jae signed the instrument at the NPS? headquarters in Shinchon-dong, Seoul. The two companies agreed to cooperate in waging public relations campaigns for CSA along with the housing pension. The MOU also spells out the two signatories will extend education for the employees of the two companies and the pensioners on the ways to design their future lives. It also clarifies that the two companies would have a closer cooperation for a supplementary development of the pension system and housing pension system by expanding exchange of information and through joint efforts to invigorate the CSA and the housing pension system. nw

President Park Hae-choon of NPS