The Proper Role of the National Pension Service

Controversy continues over the management of the National Pension Service. When the National Pension Service reduced the share of domestic stocks in line with its global asset allocation plan, stock investors poured out their complaints. They criticized it as “failing to keep up with the changing times,” while others countered that “global asset allocation is only natural.”

What about the position of the people who actually pay into the pension? Naturally, they would regard stability and profitability as the highest priorities. A sustainable pension and welfare services over the long term are directly crucial to the stability of people’s lives. Stock investors emphasize the importance of changes in the environment. They argue that since COVID-19, domestic companies have rapidly adapted to the accelerated shift toward the Fourth Industrial Revolution, making the domestic stock market more attractive. They also argue that because the share of financial assets in the domestic financial market is gradually expanding, transforming it into the pattern seen in advanced countries, this should be taken into account in investment decisions. These are certainly matters that fund managers should consider.

But regardless of the field, one keyword that has run through our society since COVID-19 is “uncertainty.” The financial market is no exception. For now, stock markets around the world may appear overheated, but no one knows when or how circumstances will change. In a situation where uncertainty is increasing, the most important thing is to adhere to principles. Global asset allocation, which allows risk to be diversified from a long-term perspective, is a principle on which there should be no disagreement.

It is desirable that the principles of fund management be upheld free from the interests of specific groups or political pressure. The government, too, should guard against the temptation to use the National Pension Service for government projects. Because pension subscribers do not hold their pensions through individual accounts, government authorities responsible for managing the fund often fall into the temptation of using it as a policy tool.

Government interference in corporate governance and management through pension funds has serious side effects. Not only does this fail to align with the objectives of managing the National Pension Service, it also has major negative effects on domestic companies. The National Pension Service’s exercise of shareholder voting rights over domestic companies excessively intimidates corporate management and entrepreneurs, undermines the standing of executives, and damages corporate value. In the long run, this threatens the profitability of the pension fund.

It is also problematic when misguided perceptions of companies lead to unreasonable opposition. There was opposition to the split-off of LG Chem and resistance to Korean Air’s acquisition of Asiana. In both cases, the stock prices of the two companies actually rose after the proposals were approved.

It was shocking that on March 26 the National Pension Service voted against the reappointment of Korean Air Chairman Won-tae Cho as an inside director. If it remembered the unfortunate events and confusion that followed when it voted down the late Chairman Yang-ho Cho’s reappointment on March 27, 2019, it should not have done so. Opposing Chairman Won-tae Cho again after he had succeeded in stabilizing Korean Air once more makes one question what purpose the National Pension Service is really meant to serve.

It is wrong in itself for the National Pension Service to step forward as if it were going to decide who corporate managers should be. Fund managers directing the affairs of Korean companies is a departure from the purpose of the National Pension Service. The voting rights of public funds must not be exercised recklessly. Interfering in corporate management is not the role of a pension fund, and companies and investors may suffer damage from violations of management rights. It must be remembered that the National Pension Service exists for the retirement security of the people, not as a tool for specific groups or for government control of companies.

Sung-no Choi

President, Center for Free Enterprise (CFE)

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Original title: 국민연금의 본분

Author: Sung-no Choi

Date: 2021-04-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23603