Korean corporate pension assets record swift growth

The Korea Financial Investment Association (Kofia) is hoping the government will further ease rules on corporate pension fund management, including allowing defined-contribution (DC) scheme subscribers to invest in equity funds.

In late August, the government showed it was willing to help the industry develop, saying it would raise the threshold of tax-exempt income for corporate pensions subscribers from $2,500 to $3,300 of their annual taxable income. The change will take effect next year.

“We are very focused on the successful development of the corporate pension industry as a critical factor to boost the systemic growth of the Korean fund industry,” says Kim Cheol-Bae, assistant managing director of the collective investment division.

To that end, Kofia has sought to emulate the corporate pension systems and pension products in Australia and the US. At the same time, the association is asking the Korean government to ease rules such as those mentioned on DC schemes.

Such efforts appear to be paying off in the form of significant asset growth. The corporate pension industry’s assets under management stood at around $16 billion as of July 30, up from $12.2 billion as of the end of 2009, and the figure is expected to reach $25 billion by the end of the year. Mirae Asset Securities estimated earlier this year that the total AUM could reach $130 billion by 2020.

The Korean corporate pension industry started in December 2005, with a five-year grace period before tax breaks for the traditional retirement insurance system is lifted at the end of 2010.

Meanwhile, the fund management industry as a whole needs to restore credibility by improving transparency and professionalism, says Kim. He also suggests that Korean investors need to receive high-quality education for their investment practices to become more stable and long-term-orientated.

Kofia was set up in February 2009 and has consolidated the three previously separate trade bodies: the Korea Securities Dealers Association, Asset Management Association of Korea and Korea Futures Association. The three associations are now part of Kofia as the securities division, collective investment division and derivatives division, respectively.

The Korean fund management industry had $275 billion in AUM as of July, having grown from $114 billion at the end of 2000, and ranks as the 12th largest in the world.

There are 76 locally registered asset-management companies, 52 of which are Korean and 24 foreign. The latter are defined as those with more than a 50% equity stake held by foreigners.