‘Why can’t I buy more ETFs in my pension?’ Calls grow to ease retirement fund investment cap

#. ‘[Notice] Your retirement pension account has exceeded the risky-asset investment limit’

Kim, a salaried worker in his 40s, had been steadily buying semiconductor ETFs through his retirement pension account when he received an unexpected notification. The alert warned that his risky-asset allocation had surpassed the permitted ceiling of 70%, and that he would need to reduce his equity exposure or rebalance his portfolio. “I had no idea there was a restriction on managing my own money the way I see fit,” Kim said. “When the market is doing this well, I want to buy more ETFs — it feels like such a waste to have 30 percent of my assets locked up in safe instruments like savings deposits.”

As pension money flows into the stock market at an accelerating pace, debate over easing the 70% risky-asset cap on retirement pension accounts has reignited. Calls are growing to lift the restriction — which limits risky-asset exposure to 70% in retirement pension accounts, unlike personal pension savings accounts that face no such ceiling — in order to improve returns. Yet as investment concentration in specific stocks and ETFs has intensified of late, both the government and industry players who had previously favored reform appear to be shifting toward keeping the current rule in place.

“I want more semiconductor ETFs in my pension” — According to the Financial Supervisory Service, total retirement pension reserves stood at 508.733 trillion won (about $334 billion) in the first quarter of this year. While overall retirement pension assets have grown at roughly 10 percent annually in recent years, ETF investment within those accounts has expanded far more sharply. A 2025 white paper on retirement pension investment published jointly by the Ministry of Employment and Labor and the FSS showed that ETF balances within retirement pension accounts more than doubled each year for three consecutive years, surging from 9 trillion won in 2023 to 48.7 trillion won last year — a more than fivefold increase.

The domestic stock market’s sharp rally has stoked demand among retirement pension holders to push their risky-asset allocation as high as the rules allow. Unlike personal pension savings accounts, retirement pension accounts — including individual retirement pension, or IRP, accounts — may hold no more than 70 percent in equities and other risky assets, with the remaining 30 percent required to be kept in safe instruments such as deposits or bonds. A private banker at a major commercial bank said consultations have increased from IRP account holders asking about or seeking recommendations for ETF products that can work around the 70% cap.

Workarounds are already widespread among retirement pension investors. Industry insiders point to the 70% rule as one reason money has been pouring into bond-hybrid ETFs. Because bond-hybrid ETFs are classified as safe assets under retirement pension regulations, they can be held separately from the risky-asset limit. When an investor fills the 70% slot with equity ETFs and then puts the remaining 30% into bond-hybrid ETFs, the account’s effective equity exposure can reach as high as 85 percent.

Fueled by that demand, the net assets of bond-hybrid ETFs have ballooned from around 800 billion won at end-2023 to roughly 15 trillion won today. Target-date funds, or TDFs — which gradually reduce risky-asset exposure as a target retirement date approaches — can also qualify as “eligible TDFs” exempt from the 70% cap if they meet certain conditions. TDF investment through retirement pension accounts reached 20.1 trillion won last year, up 50 percent from 13.4 trillion won the year before. “There are combinations that can push risky-asset exposure up to 94 percent,” one industry official said. “At this point, the 70% rule seems to have lost much of its practical force.”

Frustration among pension investors is growing. Many argue it is unfair that retirement pension accounts face strict limits while personal pension savings accounts do not — a disparity critics call regulatory discrimination. The push for deregulation has intensified particularly since personal pension fund and ETF accounts posted a return of 29.3 percent last year. The overall return for personal pension savings accounts reached 10.6 percent, far outpacing pension savings trusts at 4.0 percent and pension savings insurance products at 0.8 percent.

Stock market boom puts the brakes on easing the 70% rule — As recently as early this year, the Ministry of Employment and Labor and financial regulators were actively and favorably reviewing whether to ease the risky-asset limit for retirement pension accounts.

Documents the ministry submitted to the National Assembly last year, obtained by this publication, stated that the government “sympathizes with the need to expand autonomy in managing reserves for retirement pension subscribers who prefer a more aggressive investment approach,” and signaled its intention to review deregulation through a dedicated retirement pension task force. (See the Nov. 21 report on page 16: “‘Encouraging long-term investment’… Will the retirement pension 70% rule be eased?”) FSS Governor Lee Chan-jin also said at a meeting with financial investment company CEOs last September that the agency planned to “actively pursue support measures including a phased expansion of the risky-asset investment limit to invigorate retirement pensions.”

The mood has shifted of late, however. The Ministry of Employment and Labor has reversed course, concluding that the current limit should be maintained rather than eased, given growing market instability — including rising ETF concentration and increased stock market volatility. The ministry’s view is that the 70% rule serves as a safeguard, nudging subscribers — who vary widely in investment experience and risk tolerance — to keep at least a portion of their pension assets in safe instruments.

“Until early this year, the prevailing view within the task force was that the 70% rule should be scrapped,” said one official involved in the retirement pension task force. “But as investment concentration has worsened recently, the rule is increasingly seen as a core distinction between retirement pensions and personal pensions — and as a minimum safety net. The mood now is to gather market views and reassess.” Another industry official said the FSS, under Governor Lee’s emphasis on investor protection, is also likely to take a more cautious approach.

ETF concentration divides the industry — The deepening concentration of investment in specific stocks and thematic ETFs has added another complication to the deregulation debate. Among the seven ETFs whose net assets grew by more than 1 trillion won this month, one was a bond-hybrid ETF — “RISE Samsung Electronics SK Hynix Bond Hybrid 50” — whose net assets rose by 1.0419 trillion won as of Friday. The product holds 50 percent in Samsung Electronics and SK Hynix, with the remaining 50 percent in investment-grade bonds. ETFs combining Hyundai Motor Group stocks with bonds have also been launched in quick succession, and bond-hybrid ETFs that effectively bet on individual names are multiplying rapidly.

The flow of pension money into ETFs is also expanding. Yeom Dong-chan, a researcher at Korea Investment & Securities, wrote in a report that “ETFs account for about 6 percent of market capitalization but 30 percent of trading volume,” adding that this “signals ETFs have established themselves as a key trading vehicle in the Korean stock market.” He highlighted that individual investors had net-purchased 55 trillion won worth of ETFs so far this year, attributing the trend to “inflows from retirement pension-type funds such as DC (defined contribution) and IRP accounts.”

Any meaningful progress on easing the 70% rule looks unlikely for now. Beyond concerns about investment overheating, the competing interests of different financial sectors remain sharply at odds. Banks and insurers, which manage a large share of the mandatory 30% safe-asset allocation through deposits and principal-guaranteed products, are wary that scrapping the cap could trigger a migration of those funds into ETFs and other risky assets.

Securities firms have consistently called for greater investment freedom, but even within that camp views are divided. There is considerable concern that a surge of money into single-stock and thematic ETFs could crowd out diversified products such as default options and TDFs. “Even among retirement pension providers, positions will differ depending on each firm’s flagship products and business model,” one industry official said.

forest@heraldcorp.com