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The rates of return on retirement plan assets and expenses of asset management
Survey Papers 16-03 Mar. 04, 2016
- Research Topic Asset Management/Pension
This study explores rates of return on assets of retirement plans and expenses of retirement plans. The retirement plans in Korea were introduced in December 2005, replacing the lump-sum retirement severance pay system. We use the return data set published by the financial supervisor of the financial companies that runs retirement plan business. We compare the rates of return by types of retirement plans, investments and financial companies. We also analyze the expense of retirement asset management.
The studies on rate of returns on retirement assets are rare, even though the assets in retirement plans grew over 110 trillion won in the end of June 2015. The lacks of data may explain partly the scarcity of the research on this topic.
We find the differences in rates of return, and some interesting relationships among rates of returns and retirement assets. We also find that the rates of return and expense ratio can not explain the large differences in the market share among the financial companies, the finding that implies that other non price factors than rates of return and expense such as loan, or client relationships.
More specifically, we find include followings;
First, the rate of return on principal-interest guaranteed investment vehicles secularly decreased over last ten years and the differences in rates of return among types of retirement plans and financial companies also decreased. The rate of return on non-guaranteed investment vehicle increased after 2011, even though the rate of return stumbled more than guaranteed investments.
Second, the rates of return on guaranteed investment vehicle is higher than those of non-guaranteed investment vehicle, the result that is contrary to the basic risk-return relationship.
Third, the rates of return between defined benefit plans and defined contribution plans are not different significantly.
Fourth, the rates of returns on investment vehicles provided by security companies are higher than those provided by banks and insurance companies.
Fifth, positive relationships between the rates of return and the increase in retirement assets in guaranteed investment were found, while no significant relationships between the rates of return and the increase in retirement assets in non-guaranteed investment were found.
We also find that the differences in expenses are no big enough to explain the differences in market share. The cumulative effect of differences in expenses may become important as the investment period becomes long, and retirement asset increase.
The results of this study have many limitations, because the data set do not provide the information on the individual participant rates of return. We do not know the volatility of rate of returns on each participants' assets. We hope that we can improve this study further using more informative data set.
The studies on rate of returns on retirement assets are rare, even though the assets in retirement plans grew over 110 trillion won in the end of June 2015. The lacks of data may explain partly the scarcity of the research on this topic.
We find the differences in rates of return, and some interesting relationships among rates of returns and retirement assets. We also find that the rates of return and expense ratio can not explain the large differences in the market share among the financial companies, the finding that implies that other non price factors than rates of return and expense such as loan, or client relationships.
More specifically, we find include followings;
First, the rate of return on principal-interest guaranteed investment vehicles secularly decreased over last ten years and the differences in rates of return among types of retirement plans and financial companies also decreased. The rate of return on non-guaranteed investment vehicle increased after 2011, even though the rate of return stumbled more than guaranteed investments.
Second, the rates of return on guaranteed investment vehicle is higher than those of non-guaranteed investment vehicle, the result that is contrary to the basic risk-return relationship.
Third, the rates of return between defined benefit plans and defined contribution plans are not different significantly.
Fourth, the rates of returns on investment vehicles provided by security companies are higher than those provided by banks and insurance companies.
Fifth, positive relationships between the rates of return and the increase in retirement assets in guaranteed investment were found, while no significant relationships between the rates of return and the increase in retirement assets in non-guaranteed investment were found.
We also find that the differences in expenses are no big enough to explain the differences in market share. The cumulative effect of differences in expenses may become important as the investment period becomes long, and retirement asset increase.
The results of this study have many limitations, because the data set do not provide the information on the individual participant rates of return. We do not know the volatility of rate of returns on each participants' assets. We hope that we can improve this study further using more informative data set.