"We limit speed for your safety."
Few people would argue with that sign on the road. Speed limits are a necessary safeguard. But the question is always one of degree. Imagine capping every vehicle's top speed at 60 kilometers per hour. Accident risk might fall somewhat — but highways would be rendered useless, logistics costs would soar and the efficiency of the entire economy would suffer. The moment a rule meant to reduce risk begins to restrict life's opportunities, it stops being a protection and becomes a shackle.
Korea's "70 percent rule" on risk assets in retirement pension accounts works much the same way. Under current rules, pension funds may invest no more than 70 percent of total reserves in equity funds, exchange-traded funds and other risk assets — all in the name of shielding subscribers from principal losses. On the surface, it sounds eminently reasonable. But in finance, good intentions often produce the opposite of their intended effect. Rather than protecting subscribers, the 70 percent restriction is more likely to leave them poorer in retirement.
A retirement pension is not a short-term financial product. For most subscribers, the investment horizon stretches 20 years — sometimes 40. Over that kind of timeframe, the variable that matters most is not short-term volatility but long-term growth that outpaces inflation. That is precisely why a higher share allocation makes sense for subscribers in their 20s and 30s: a long runway absorbs market shocks and maximizes the power of compounding.
Yet Korea is moving in exactly the opposite direction. A 25-year-old just entering the workforce and a 58-year-old two years from retirement are subject to essentially the same investment restrictions. Even if a young subscriber decides, on their own judgment, to put 80 or 90 percent into equities for the long haul, the system blocks them. In effect, the government is substituting its own risk assessment for that of a competent adult.
The deeper problem is that this regulation actively suppresses real returns. Korea's retirement pension system has long been trapped in a structure dominated by principal-guaranteed products — the predictable result of reinforcing a bias toward deposit-like assets under the banner of subscriber protection. In practice, many subscribers have spent decades managing their pension only to end up with returns that barely keep pace with inflation. Reserves have accumulated, but they have not translated into adequate retirement income. Regulators may congratulate themselves on keeping things safe, but subscribers actually face a far greater risk after retirement: insufficient assets. The system may have reduced the risk of short-term losses, but it has amplified the risk of long-term poverty.
Advanced economies take the opposite approach. According to OECD reports, major countries — the United States, Australia, the Netherlands and Canada among them — have moved away from quantitative caps on risk assets in favor of systems that emphasize diversified investment strategies and the expertise of asset managers. The global standard is shifting steadily toward stronger accountability for fund managers and greater freedom of choice for subscribers.
Korea still operates on the premise that the government should worry about citizens' money on their behalf. The 70 percent risk-asset cap is no longer a safety device — it is a speed limiter bolted onto the growth engine of the nation's retirement savings. The time has come to abolish it outright. The pension regime should evolve to allow flexible asset allocation across the life cycle, backed by transparent disclosure and stronger fiduciary duties for financial institutions. The government's job is not to make investment decisions on behalf of citizens — it is to build the environment and accountability framework that allows citizens to invest well.
Min Ju-young is managing director of the pension business division at Shinyoung Securities and holds a doctorate in pension finance.
kacew@heraldcorp.com
