Korea’s NPS registers 9.4% return in Jan.-June

[Courtesy of NPS]

South Korea’s National Pension Service posted a nearly 10 percent cumulative return in the first six months of 2024, standing out as an optimal measure to delay the depletion of the pension funds.

According to industry sources on Thursday, the cumulative return rate of the NPS as of mid-June 2024 reached 9.4 percent, a significant increase from the provisional return rate for the first quarter of this year, which was 5.82 percent.

Since the fund’s establishment in 1988, the average annual return rate of the NPS has been 5.92 percent. In 2023, the NPS recorded a high provisional return rate of 13.59 percent, surpassing its previous record of 11.31 percent in 2019.

If the NPS achieves over 10 percent return this year, it will mark the second consecutive year with an over 10 percent return.

The NPS‘s reserves, in the meantime, stood at 1,142 trillion won ($823 billion) as of June, nearing 1,200 trillion won after surpassing the 1,000 trillion won mark at the end of last year.

In 2022, the NPS suffered a loss of 8.22 percent due to corrections in major countries’ stock markets triggered by concerns over high interest rates and inflation. A loss of about 80 trillion won in the reserves around that time was recovered last year with good performance.

Amid concerns about fund depletion, the high return of the pension fund and the subsequent increase in its reserves could delay the depletion of the funds, according to experts, serving as an alternative to increasing insurance premiums.

Noting that the best way to prevent fund depletion is to “build a good portfolio and increase the average return rate,” former NPS Chief Executive Officer and Chairman of the Institute for Global Economics Jun Kwang-woo highlighted securing professional personnel and strengthening cooperation with the Korea Investment Corporation to enhance the NPS status and improve the return rate.

Currently, the NPS is focusing on enhancing return rates through advanced global asset allocation strategies. In the long term, it plans to concentrate its capabilities on investing in overseas stocks, which are the most profitable asset class.

Since the fund‘s establishment, the most profitable asset class has been overseas stocks, which account for 30 percent (176 trillion won) of the cumulative investment returns excluding premiums.

Recently, the NPS has been breaking down barriers between asset classes and expanding into alternative investments, starting with timber funds.

The asset class with the highest average annual return rate has been overseas stocks with 11.04 percent, followed by alternative investments with 9.28 percent.