The challenge lies in the fact that this increase in longevity coincides with a shortened preparation period for retirement. While extended education has delayed the age of entry into the workforce, the retirement age remains around 60, resulting in a reduced preparation time for retirement and a significantly longer post-retirement period.
This situation heightens the risk of depleting income or facing poverty in old age. Considering that the average healthy life expectancy is about 72.5 years, many elderly individuals will need to cover living and medical expenses for an extended period, even after their health declines. These changes underscore the growing importance of pensions, which provide stable cash flow.
However, paradoxically, recent trends in the financial market have moved away from expanding traditional pension products. The amount invested in pension savings funds has rapidly increased, surpassing that of pension savings insurance, which offers lifetime annuity features, around 2025.
Retirement pensions are also expected to grow to 500 trillion won by 2025, but participants are increasingly favoring performance-based products like exchange-traded funds (ETFs) and target-date funds (TDFs) over principal-protected options. This shift reflects a reorientation in pension asset management from a focus on guarantees to one centered on asset management, driven by policies to invigorate capital markets, changing investment perceptions, and improved performance-based returns.
While this change is not inherently negative, it is crucial to secure a certain level of investment returns in a super-aged society where assets must be managed over the long term. Given the low-interest-rate environment and rising prices, relying solely on conservative management may not suffice to maintain real retirement income. Expanding performance-based assets based on long-term diversified investments can enhance the growth and sustainability of pension assets.
The issue, however, is that the pension market is shifting toward a focus on performance competition without adequately integrating longevity risk management and lifetime income guarantees. While capital markets offer opportunities for high returns, they also come with significant volatility. Market shocks occurring just before or after retirement can directly impact the assets of the elderly. Since pensions are designed to address longevity risk, an excessive focus on investment performance could undermine the stability of retirement income.
These changes are also linked to shifts in consumer asset management approaches. Historically, the pension market prioritized stability, but recent consumers have determined that stability alone is insufficient. Experiencing rising prices and market volatility has increased interest in real returns, while concerns about the structure of long-term capital lock-up have grown. Younger generations, in particular, tend to prioritize investment choices and liquidity over guarantees.
However, the current pension market is not adequately responding to these changes. Many products still focus on accumulation, while the necessary withdrawal and management functions post-retirement are relatively lacking. Among retirement pension recipients aged 55 and older, only about 13% receive their pensions in annuity form, with most opting for lump-sum payments. This reflects both the practical limitations of insufficient accumulated funds for annuitization and a shift in perception favoring liquidity and asset control over stable cash flow.
Ultimately, the super-aged society presents a structural dilemma for the pension market. The need for pensions is increasing, yet consumers are no longer satisfied with traditional pension products. Recently, the pension market, which should supply long-term funds in response to super-aging, appears to be influenced more by capital market trends than driving them.
To address the challenges of a super-aged society, the future pension market must transition from an accumulation-focused structure to a comprehensive retirement asset management system centered on decumulation. While expanding investment choices and improving returns are important, it is equally essential to maintain the fundamental functions of pensions, such as providing lifetime cash flow and ensuring retirement income stability. A key challenge will be how to harmonize a professional management system based on long-term diversified investments with stable annuitization functions.
The super-aged society offers significant opportunities for the pension market. However, it also highlights that traditional methods are no longer sufficient to attract consumer choices. The pension industry is now at a turning point where it must demonstrate not just "why pensions are necessary" but also "what pension systems are suitable for a super-aged society."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.