Corporate retirement pension funds managed by South Korea’s major commercial banks posted poor returns in the first half of the year, data showed Thursday.

Low yields have also drawn criticism from a lawmaker here, who called for swift adoption of improvement measures in operating such funds.

Retirement pension funds managed by top commercial lenders saw their yield rates hover at 1.69 percent on average, according to the state regulator Financial Supervisory Service’s data acquired and distributed by Rep. Chun Jae-soo of the ruling Democratic Party of Korea. Chun also serves on the National Assembly’s National Policy Committee, overseeing local financial institutions.

The data delved into three most common types of pension plans – defined benefit, defined contribution and individual – run by the four major lenders: KB Kookmin, Shinhan, Woori and Hana.

The defined benefit, or DB, plan determines employees’ retirement benefits in advance, and employers are responsible for the management of funds. It is the most popular and “low-risk,” of the three funds as it guarantees both principal and interest.

The defined contribution, or DC, plan, meanwhile, requires employers to annually reserve a certain portion of employees’ annual salary and the employees can choose to invest the reserve into other vehicles, then later receive returns. The individual plan is similar to the defined contribution plan but is available to a customer with a company under 10 employees.

The FSS data showed that the average yield of DB, DC and individual types declined on-year by 0.02 percentage point, 0.73 percentage point and 1.6 percentage points to 1.68 percent, 1.69 percent and 1.16 percent, respectively, in the cited period.

By DB yields offered by banks in the first half of 2020, Shinhan was the best performer with 1.79 percent, while Woori came last at 1.58 percent.

Chun said that the four major banks’ rising commission fees to run retirement pensions was one of the main culprits for low pension fund returns.

The amount for all commission fees stood at 260.2 billion won ($224.7 million) in 2017, compared to 356.6 billion won last year. The lenders raked in 155.6 billion won in fees in the first half of this year, according to Chun.

“The retirement pension funds are a popular retirement financial plan for employees, but with the low yields, 98 percent of retirees choose to receive their severance pay in a lump sum,” Chun said.

“Lowering commission fees and adopting default options to improve yield rates are necessary,” he added.

The outstanding volume of retirement pension funds exceeded 221 trillion won in Korea as of last year, making it a lucrative market for local financial institutions. The pension fund accounts run by the four major banks here in the first half amounted to 74.6 trillion won, the data showed.

By Jung Min-kyung (mkjung@heraldcorp.com)