Ahead of the government's announcement on the fund-type defined contribution pension system, it is expected that the number of trustee entities will be limited to fewer than 10. While the government aims to prevent a flood of funds through a pre-approval system, some segments of the financial sector are raising concerns that this could effectively create a structure dominated by large corporations.
According to the financial sector on the 11th, the working group on fund-type defined contribution pension under the Ministry of Employment and Labor has recently decided to limit the number of approved trustee entities to between 5 and 8.
Fund-type defined contribution pensions are a system that moves away from the current contract-based structure, where institutional investors pool and manage retirement funds from multiple companies. In Korea, legislation was first proposed in 2018 but was discarded following the end of the National Assembly's term. However, this February, a task force (TF) involving labor and management agreed to introduce fund-type defined contribution pensions under the defined contribution (DC) model, and legislative work is now underway. The Ministry of Employment and Labor, the lead ministry, plans to release guidelines next month covering detailed provisions such as pre-approval for trustee entities, capital contribution requirements, and regulations to prevent conflicts of interest.
The financial sector is closely monitoring the scale of pre-approval for trustee entities. The fund-type defined contribution pension structure operates with trustee entities setting overall frameworks—including target returns, risk limits, and investment guidelines—while externally appointed asset managers (OCIO) or professional management firms selected by the trustees manage assets accordingly. The role of trustee entities varies depending on the fund type and may be assigned to public institutional investors, employer unions, or financial institutions.
The government's move to limit the number of trustee entities to fewer than 10 is intended to prevent a proliferation of funds. In Australia, the number of Superannuation Funds under its fund-type defined contribution pension model dropped significantly from 232 in June 2015 to 77 as of the June 2025 fiscal year-end. An official familiar with discussions on fund-type defined contribution pensions stated, "The goal is to consolidate funds into large pools to achieve economies of scale, so it would not be appropriate for small and medium-sized funds to proliferate." The official added, "Given Australia's experience, there is no need to strictly follow its path."
As expectations grow that trustee entities will be selected primarily among large institutional investors, some small and medium-sized financial firms are pushing back, calling the regulation a move that deprives participants of their choice. An official from the wealth management division of one financial firm remarked, "The problem with the contract-based defined contribution pension structure was its focus on attracting new funds, prioritizing marketing over quality growth such as returns." The official further criticized, "Selecting trustee entities based on large companies alone amounts to repeating the same marketing-focused approach of the past."
The reason for the financial sector's opposition is that with retirement fund reserves surpassing 550 trillion won, the market size for fund-type defined contribution pensions is expected to grow proportionally. According to a 2024 report by the Korea Development Institute, retirement fund reserves are projected to reach 1,172 trillion won by 2040.
An official from the Ministry of Employment and Labor stated in response, "The system is still being developed, and the details have not yet been finalized."
in FINANCE
