South Korea's pension fund gains seven years—but can it last?
South Korea’s National Pension Service (NPS) achieved an 18.82 percent annual return in 2022, boosting its financial position. The strong performance was largely driven by a surge in the Kospi, which helped delay the projected depletion of the pension fund by roughly seven years. However, concerns remain about the long-term sustainability of the system. The NPS saw its domestic stock holdings grow significantly, rising from 264 trillion won in 2021 to 395 trillion won by February 2023. As of that month, these stocks made up 24.5 percent of the total portfolio—well above the target of 14.9 percent and even surpassing the 19.9 percent cap.
The surge in stock values contributed to pushing back the fund’s expected depletion date from 2071 to 2078. Yet, some experts warn that such high returns, achieved under exceptional market conditions, may not continue in the future. They also stress that fundamental reforms are needed to ensure the pension system remains viable, especially as Korea’s rapidly ageing population increases the demand for payouts.
In response, the NPS is looking to diversify its investments to avoid over-reliance on any single asset class. The fund’s management committee is set to meet on Thursday to finalise a midterm strategic asset allocation plan. While the NPS has gained time due to recent market gains, the pressure for reform persists. The fund’s upcoming strategy adjustments will play a key role in managing risks and extending its longevity. Without structural changes, however, the long-term challenges of an ageing population and rising payouts remain unresolved.
