Can Korea’s pension whale always deliver high returns?

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Can Korea’s pension whale always deliver high returns?

Published: 12 Sep. 2025, 00:04

Audio report: written by reporters, read by AI

Joo Jung-wan

The author is an editorial writer at the JoongAng Ilbo.

In Korea’s stock market, the National Pension Service (NPS) is often called the “whale in the pond.” As of the end of June, its fund assets stood at 1,269 trillion won ($934 billion), an amount greater than half of the total market capitalization of the Kospi, which reached 2,512 trillion won at the same time. The metaphor captures the imbalance of a giant fund moving within a relatively small market.

The NPS does not invest only at home. Its portfolio is spread across global markets. Still, its moves in the domestic market draw close attention, as its sheer size means that every shift can move the index.

National Pension Service's headquarters in Jeonju, North Jeolla. The NPS is Korea's largest institutional investor. [YONHAP]

The first half of this year offered unusually favorable conditions for the whale. In late August, the NPS Investment Management arm reported a 31.34 percent return from domestic equities in the first half of the year. That was far above the 8.61 percent recorded a year earlier. The rebound followed last December’s martial law crisis, when the Kospi briefly plunged below 2,400. With the launch of the new administration in June, the index crossed 3,000.

Yet the overall picture was less impressive. The NPS fund’s total return in the first half was 4.08 percent, its weakest in three years. In 2023 and the first half of 2024, the fund posted returns in the 9 percent range. This year’s result, while still positive, was less than half of recent years.

The reason lies in asset allocation. The NPS divides its portfolio into five categories: domestic equities and bonds, overseas equities and bonds, and alternative investments such as real estate and infrastructure. Overseas equities yielded only 1.03 percent in the first half, compared with 20.47 percent a year earlier. Foreign bonds fell by 5.13 percent, and alternative investments by 2.86 percent. Details of the underperformance remain undisclosed.

High returns are, of course, desirable. A stronger fund balance can slow the depletion of the pension. Current projections from the National Assembly Budget Office warn that the fund could be exhausted by 2065. The Ministry of Health and Welfare estimates that if annual returns were raised by even one percentage point, depletion could be delayed until 2072.

But the pursuit of high returns alone carries risks. In investment, profit and risk are inseparable. A policy directive to raise returns implicitly requires greater tolerance of volatility. Whether this is wise is open to debate. What is clear is that risk management becomes paramount once such a policy direction is chosen.

Last September, Lee Seu-ran, then director general for social welfare policy at the Health and Welfare Ministry and now first vice minister, emphasized this point. “If we expand alternative investments with favorable risk-return profiles, overall risk can decline,” she said at a press briefing. Yet the NPS posted losses in that very sector this year, underscoring how difficult it is to translate theory into results.

Transparency is another issue. The NPS has long been criticized for a “black box” approach to risk. A report released by the National Pension Research Institute earlier this year, titled “Analysis of Global Fund Disclosure Levels to Strengthen NPS Disclosure,” was a candid self-assessment.

The report noted that leading funds in Japan, Canada, and the Netherlands treat annual reports not merely as lists of results but as key communication tools. They disclose stress tests, showing how portfolios would perform under crises such as financial crashes or wars. By contrast, the NPS reports offered only textbook definitions and abstract explanations.

Another challenge looms. The whale itself will eventually shrink. The Budget Office projects that in the early 2030s, premium income will no longer cover pension payouts. From that point, the NPS will have to draw on its accumulated fund. That will constrain its ability to invest in domestic equities and other assets.

Lawmakers pass a bill for pension reform during a plenary session at the National Assembly in western Seoul on March 20. [NEWS1]

Leaving this issue to the next administration would be irresponsible. The NPS manages the retirement savings of millions. To preserve public trust, the government must prepare well before depletion becomes a reality.

The NPS has long been regarded as both an investor and a stabilizer in Korea’s markets. But its dual role is increasingly fraught. It must balance the need to generate returns with the responsibility to safeguard citizens’ future income. Achieving both requires stronger transparency, a deeper commitment to risk management and political will to confront looming demographic pressures.

The whale in the pond cannot forever move as it pleases. Sooner or later, the pond itself may no longer sustain it. The question is not whether the NPS can deliver high returns in one half-year or another, but whether it can sustain confidence and solvency across generations.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.