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Comparative Analysis of the Solvency Regulation on the Retirement Pension

  • Journal of Insurance and Finance
  • 2008, 19(1), pp.3-41
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

류건식 1 Lee Kyonghee 1

1보험개발원 보험연구원

Accredited

ABSTRACT

This study analyzes solvency regulation framework of private pension between Korea and advanced countries. Results indicate that supervisors are necessary to consider the reform on the current retirement pension regulation for the protection of vesting rights by securing the solvency of pension fund. First, ex-ante solvency regulation should be established such as actuarial assumptions and technical provisions method for firm-specific scheme. Also, riskbased approach is necessary as an ex-post solvency regulation. Pension funds have to fully funded their liability with a solvency buffer. Guidance of pension accounting is required for implementation of IFRS. Second, statutory funding regulation is required to set out in a statement of funding principles. In case of a shortfall, the employers have to prepare a recovery plan such as amortization of actuarial deficit, complementary contribution, and etc. In the long term perspective, maximum funding limit and prompt intervention are necessary for prevention of employers’moral hazard. Third, supervisory authority should increase the current statutory technical provision level from 60% to 100% to ensure the financial strength of retirement pension schemes. In addition, comprehensive reviews are demanded such as the enhancement of elimination level of past service liabilities and maximum amortization period of actuarial deficit.

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