South Korea’s fledgling corporate pension fund market, which totals only about KRW 14 trillion ($11.31 billion), will more than double by the end of this year but remains massively dominated by a few institutions.
According to a report by Towers Watson, the top four service providers in the Korean market administer about half of the funded corporate pension assets. There are 53 service provider organisations tracked in the study, including banks, insurers and securities firms.
The banks account for almost half of the assets, with the top three totalling KRW 3.9 trillion under administration. They are: Kookmin Bank, Shinhan Bank and Woori Bank. The largest provider is Samsung Life, whose associated companies account for more than 50 per cent of its pensions business, including the KRW 2 trillion Samsung defined benefit plan.
Towers Watson observes that the total pension assets will grow to between KRW 30-40 trillion by year’s end as large numbers of corporate sponsors switch from the legacy severance pay system because of an imminent change inn tax treatment.
Jayne Bok, director of investment services for Korea at Towers Watson said that many service providers were under enormous pressure and some might have to quit the business due to their lack of scale – notwithstanding the big increase in total assets expected soon.
Of the 53 service providers tracked for the report, 30 administer assets of less than KRW 100 billion.
Korea enacted the Employee Retirement Benefit Security Act in 2006 with a view to replacing existing severance schemes. In the past four years fund managers have been setting up dedicated retirement fund products for service provider platforms and their underlying pension clients.
As a result, the report says, at the end of 2009 there were 34 fund managers managing 255 registered retirement funds. The top 10 of these accounted for 86 per cent of total registered retirement fund assets (KRW 1.1 trillion). Eight of the managers were affiliated with large service provider organisations.