Seoul Korea - The market for defined contribution pension plans is forecast to grow to 167 trillion won (US$154 billion) by 2023, accounting for more than 40 percent of the total retirement pension market. Truston Asset Management held a seminar on December 16 at the 63 Building in Seoul's Yoido on the future of defined contribution plans.
Kang Chang-hee, president of Truston pension education forum, said in the seminar, "The trend is a fast shift toward defined contribution pension plans and we should be prepared about it." A defined contribution plan is different from the usual defined benefit plan in that there is no guarantee for future benefits. The only thing that is fixed in the defined contribution plan is the amount the employer contributes to the account. The employee is responsible for how the fund is managed.
Kang added, "As of the end of September this year, the volume of defined benefit plans reached 60 trillion won while that for defined contribution plans 20 trillion won. By the end of 2023, however, it will be reversed as the portion of defined contribution plans grows to 167 trillion won while that for defined benefit plans reaches 143 trillion won.
"Only 30 years ago, most parents safely assumed their old age would be taken care of by their children. But there is no such thing in developed countries. The share of public and private pensions in total income for senior citizens is 67.0 percent in the United States and 67.5 percent in Japan. In contrast, the share is only 13.2 percent for Koreans," he continued.
The ratio of income relying on children's allowance is 30.1 percent in Korea while that for the United States and Japan is only 0.7 percent and 1.9 percent. Kang stressed, "Under Korea's situation, defined contribution pension plans are bound to grow rapidly and the old generation will need investment education in this area."
By Chun Go-eun
