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Pension service extends temporary adjustment period for currency hedging strategy until next year

Published: 15 Dec. 2025, 23:28

Minister of Health and Welfare Jeong Eun-kyeong speaks at the National Pension Fund Management Committee's seventh meeting of the year, held at 4 p.m. at the Seoul Government Complex, central Seoul, on Dec. 15. [MINISTRY OF HEALTH AND WELFARE]

The National Pension Service (NPS) will extend its temporary adjustment period for the strategic currency hedging ratio of its fund until next year to continue mitigating risks from exchange rate fluctuations.

This adjustment period refers to a temporary policy allowing the NPS to modify how much of its overseas investments are shielded from currency swings. Strategic currency hedging is used to lock in exchange rates in advance — minimizing losses when foreign currencies weaken against the won. The adjustment period enables the NPS to change this hedging ratio flexibly based on global financial conditions, rather than adhering to a fixed strategy, thereby better protecting returns in volatile markets.

This extension was approved at the National Pension Fund Management Committee's seventh meeting of the year, held at 4 p.m. Monday at the Seoul Government Complex.

In December last year, the committee had decided to extend the temporary use of strategic currency hedging through the end of this year to guard against currency-related losses following a sharp rise in exchange rates. The committee explained that the decision to extend the measure further was based on the continued strength of the won-dollar exchange rate throughout this year.

As a result, the NPS plans to extend its foreign exchange swap agreement with the Bank of Korea through the end of 2026. It also aims to develop a more flexible implementation plan to adjust hedging activities in response to market conditions.

The committee also confirmed a cumulative excess return target of 0.248 percentage points for the Fund Management Headquarters over the five years from 2022 to 2026. This target represents the rate of return the headquarters must achieve beyond the benchmark return and is used to assess relative performance for incentive pay. The committee said it reached the figure after balancing the need for excess returns with ongoing uncertainty in financial markets.

The National Pension Service logo seen at its northwestern Seoul office in Seodaemun District, western Seoul, on Nov. 26. [NEWS1]

The committee also reviewed the background and direction of joint discussions within a newly established four-party consultative body comprising the Ministry of Economy and Finance, the Ministry of Health and Welfare, the Bank of Korea and the NPS. The committee was briefed on recent developments and stated that any key policies emerging from the group must be deliberated and approved by the committee before being implemented.

The four-party consultative body was launched on Nov. 24 to harmonize pension fund profitability with foreign exchange market stability. Since its formation, the group has been reviewing various response measures, including an extension of the $65 billion annual currency swap agreement between the foreign exchange authorities and the NPS, which is set to expire at the end of this year.

Health and Welfare Minister Jeong Eun-kyeong thanked the committee members and fund management headquarters staff for their efforts to boost returns amid a challenging global financial environment.

“With the National Pension Fund now totaling 1,400 trillion won [$956 billion] — more than half Korea’s GDP — and expected to grow further as pension reforms proceed, there is a growing need to reassess the fund management system developed in the past,” Jeong said. “We will work to strike a balance between protecting the fund’s profitability and minimizing its long-term impact on the market.”

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.
BY CHAE HYEE-SEON [[email protected]]