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Tapping the national pension will not tame the won and will only undermine retirement security

Published: 19 Jan. 2026, 00:04

Yun Suk-myung

The author is an honorary research fellow at the Korea Institute for Health and Social Affairs and chair of Reset Korea Pension Reform Subcommittee.

For years, the government and the Democratic Party have argued that if the National Pension Fund is managed well, the date at which it is exhausted can be pushed back to 2071 or even to 2090. Recently, however, the tone has shifted. Invoking the “public nature” of the National Pension, policymakers now speak as if it were natural to mobilize the fund for government policy goals.

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

This marks a sharp departure from the system painstakingly built to ensure transparency in fund management. Under that framework, the fund’s strategic and tactical asset allocation decisions are made through deliberation and approval by the fund management committee. That principle is now being shaken.

Under the banner of a “new framework,” the government has signaled its intention to take a more direct role in running the fund. After a recent meeting of the fund management committee, a task force led by the first vice minister of the Ministry of Health and Welfare was formed and moved toward currency hedging under the guise of “strategic ambiguity.” The problem is that such steps can mean forgoing returns that would otherwise have been earned, raising questions about both accountability and consistency.

The National Pension Fund’s management guidelines are explicit. Article 4 sets out core principles, including profitability, stability, public interest, liquidity and independence. Article 8 on strategic asset allocation states that the fund management committee must set asset allocation targets for the coming five years each year and then establish annual management plans to implement them. Article 11 allows for tactical adjustments in response to economic conditions and market outlooks but requires clear justification and committee approval if asset class weights move outside permitted ranges.

Most notably, Article 13, Clause 3, which deals with foreign exchange management, stipulates that exposure arising from overseas investment and short-term foreign currency funds should not be hedged in principle. As these guidelines grow less clear in practice, controversy is inevitable.

There has long been criticism of channeling most of the National Pension Fund into overseas assets purely to raise returns. The concern is that exporting domestically accumulated capital on such a scale could have unintended side effects. Yet sharply increasing the domestic equity allocation is also not a panacea. Doing so would raise the likelihood that the National Pension Service becomes a major shareholder in key Korean companies. This, in turn, fuels fears of “pension socialism,” where the fund, through stewardship codes, influences corporate management and the government gains indirect leverage over private firms.

Raising the share of domestic government bonds carries its own risks. In an era of sustained expansionary fiscal policy, it could become an easy tool for financing deficit budgets. In short, every option carries trade-offs.

International examples offer no simple blueprint. Norway, which manages one of the world’s largest sovereign wealth funds, invests entirely overseas. Japan, by contrast, runs its public pension funds more conservatively than Korea, with much lower exposure not only to foreign equities but also to alternative investments. The Canada Pension Plan, widely regarded as a gold standard, operates under strict political independence and is managed by top-tier global professionals. Korea’s current reality is far removed from that model.

As a small open economy, Korea should pay closer attention to Sweden, which faced similar conditions. After a severe economic crisis in the early 1990s, Sweden’s public debt ratio climbed to 76.6 percent in 1995. Prime Minister Goran Persson appealed to the public with a stark message: there is no freedom for those burdened by debt. His government introduced strict fiscal rules. Budgets were prepared on a three-year cycle, and if a deficit was recorded in one year, it had to be eliminated within three years. As a result, Sweden’s public debt ratio fell to 34.8 percent by 2010 and remains below 40 percent today. The contrast with Korea, where public debt is rising rapidly, is striking.

Electronic display boards at Woori Bank in central Seoul show Korea's market on Jan. 16. [WOORI BANK]

Many Koreans and foreign investors have joined the trend of betting on a weaker won. This likely reflects doubts about the country’s economic outlook. With potential growth falling sharply, deficit budgets continue, yet much of the spending is seen as politically motivated rather than focused on future growth engines.

If the government wants to persuade the public to support a higher domestic equity allocation by the National Pension, it must first establish credibility. That requires convincing steps toward fiscal discipline. Without a clear return to sound public finances, appeals to patriotism or market stabilization will ring hollow.

Trying to use the National Pension as a stopgap measure, without sharing the pain of belt-tightening, risks achieving neither goal. It will fail to rein in the exchange rate and instead deepen anxiety about retirement security. These concerns deserve a serious hearing from policymakers.

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.