Korean pension market jumps by one-third

South Korea's corporate-pension industry is now surging, as some of the country's biggest employers join the new system.

In December, the industry's assets under management grew to $12.2 billion. That month alone saw the industry grow by 35.9%, or $3.4 billion, thanks to the entry of Samsung Electronics and LG Group, among others. As of September, the system counted 1.48 million account-holders.

The corporate-pension industry began in December 2005 with a five-year grace period before tax breaks for the traditional retirement insurance system are lifted, in an effort to supplement the nation's social-security framework. Companies are expected to fully convert by the end of 2010.

They can transition to one of three types of structure: defined-benefit (DB), defined-contribution (DC) and individual retirement accounts (IRAs). According to the Financial Supervisory Service, 71.7% of corporate retirement schemes are DB and 21.2% are DC, leaving 7.1% for IRAs.

As a whole, 85.3% of corporate-pension investments are allocated to fixed-income products. Most members or plan sponsors favour safe products for retirement.

The lion's share of the market has gone to big commercial banks, which have 48.5% of the business, followed by insurance companies, with 39.7%. Securities brokers account for 11.8%.

The largest player in terms of market share is Samsung Life Insurance, which manages $2.7 billion, or 22.2% of the market.

Cho Yunsoo, investment manager in Samsung Life's separate-account business, says most products are locally managed, and that 85.3% of pension assets are flowing into domestic principal-and-interest-guaranteed, fixed-income-type products. However, as the market grows and becomes more competitive, Samsung Life will consider adding overseas investments, she says.

Mirae Asset estimates that the corporate-pension industry could reach $130 billion by 2020.