공지사항

				        	By Garry Pieters 
Governments around the world are concerned about the effects of demographics on retirement systems, whether in existence, funded or un-funded. 

Korea is no exception, but has the luxury that other countries have preceded and made the mistakes. Korea can learn valuable lessons before implementing its own system. 

One lesson is that a sound, funded pension system has resulted in being very supportive for economies, stock and bond markets. 

Implementing a system for the sake of supporting these markets will not last simply because it will not add breadth to the markets and because governments have potentially conflicting interests. 

The recently debated implementation of ``escape clauses'' to increase stock market liquidity is at best a short-term measure but will not achieve significant liquidity. 

According to ING Group, one of the largest global pension providers, there are four crucial steps Korea should consider before implementing the pension reform. 

1. Communication between parties: Before launching pension reform, the government should look around and learn from mistakes and successes in pension reform elsewhere. 

More importantly, the government should also educate the public and stimulate a public (not just parliamentary) debate. 

Increasing public awareness why it is crucial individuals should care for their own retirement will lead to easier acceptance of a new system. 

2. Parties should understand each other's roles: For any system to work, all parties have to participate. The government has to set the rules and regulations, and to implement the operational framework. 

The private sector has to implement the schemes and manage the business (investment management, administration, sales process etc.), including education and safeguarding of members' benefits and rights. 

Professional management is important: there is evidence that privately managed pension money achieves higher real returns than government-run pension funds. 

Education will help people understand why it is important to invest wisely rather than just saving short-term money. Inflation is the enemy of saving. 
Investing wisely is how to win against this enemy. 

3. Pooling private savings will help develop capital markets: While liquidity (or the lack of) in the Korean market is an issue, it is because of the lack of dedicated long-term money that we have such volatile markets and why foreign investors own such a large exposure. 

Professionally managed pension money will find its way into the markets, thus forcing improvements in company transparency, restoring investor confidence and attracting more issuers and investors from all over the world. 

Education again, will also improve local investors' confidence in their own market and prove why a more longer term horizon will reduce risk and add to performance. 

4. Members will demand to manage their own affairs: One of the reasons why many pension reforms are taking place now, is from lack of confidence in the current system. 

Ask the average man and woman in Korea what they expect from the state pension, and they will answer ``little.'' At the same time however, there has been no concerted effort to educate the public on the necessity to invest wisely. 

It is therefore no surprise that most people cling onto the retirement allowance system, because at least that seems to be money they can count on. 

The sad statistic is that a considerable portion of the RAS is consumed before retirement age is reached. There are examples even in the region, of systems where the beneficiaries have total control over their investments and can access their portfolio at any time of day to check on the status. 

These systems while mandatory, have been easy to ``sell.'' Trust in the system achieves confidence and broad participation. 

The above has lead ING and KBITM to conclude that the government, labor and employers, as well as the professionals (banks, insurers and asset managers) should discuss the lessons that can be learnt and stimulate and participate in the debate of informing and educating the public. 

A proper reform program, implemented over time and primarily in the interest of the beneficiaries, will lead to a healthier and wealthier society. 
ING and KBITM, as well as other local and foreign participants, actively try to participate and offer experience and expertise, in the interest of supporting the local reform process. 


** The writer is head of ING Investment Trust Management Korea and vice president of Kookmin Bank Investment Trust Management 



04-04-2004 19:07