The private pension system continues to attract more participants every day. After the system began paying out its first pensions recently, many are wondering how to obtain a higher pension income from private retirement plans.
Key Points for Current Participants
In recent years, returns within the private pension system have risen noticeably. Compared to other investment options, the system has become more attractive. Another factor is that returns have been kept higher than in previous years. Early criticism of the system often focused on low returns, which led many people to leave. However, adjustments made to the system and a growing number of participants have increased private pension earnings. The economic uncertainty brought on by the coronavirus pandemic and heightened concerns about the future also encouraged more people to join private retirement plans.
To benefit fully from the system, participants must manage their plans actively. Currently there are about 12.6 million participants, many of whom joined through automatic enrollment and may not fully understand how the system works. One of the most important issues is the choice of pension plans and the funds within those plans used to grow savings. Funds play a crucial role in the private pension system because fund performance largely determines final returns.
Participants are allowed to change funds six times per year. While constantly switching funds is usually not beneficial, updating fund choices a few times a year can help. Year-to-date average returns in the system have been about 25.5%, while inflation for the same period was recorded at 10.6%. This means pension funds delivered roughly a 10 percentage point real return above inflation. For example, gold funds returned around 61% and foreign currency funds about 39% in that period. Therefore, forecasting which funds will perform better and aligning contributions accordingly is a central task for participants.
Which Funds Should Be Preferred?
Choosing funds within a private pension plan is ultimately the participant’s responsibility. Selecting funds requires economic knowledge and foresight, so this decision should be made carefully. Funds are generally categorized as low-risk, medium-risk, and high-risk. Low-risk funds typically deliver lower returns but protect savings from sharp losses; many who enter through automatic enrollment are placed in low-risk options. Medium- and high-risk funds can offer higher returns but also come with greater potential for losses. For this reason, selecting funds with guidance from a financial advisor is recommended so your choices match your risk tolerance and retirement goals.
Make Full Use of Government Contribution
Another effective way to increase overall returns in the private pension system is to maximize the government contribution. The amount of government support depends on your monthly contribution: the government matches a portion of contributions up to a cap. The government contribution is generally limited to 25% of the gross minimum wage. For example, if you contribute 1,000 units monthly, the government will add 250 units as support each month. If you raise your monthly contribution to 2,000 units, government support would increase to 500 units. Increasing the monthly premium therefore directly raises the government contribution and can significantly boost long-term pension savings.