The Korean National Pension Fund projections, short-run volatility, and policy target returns

Abstract

The Korean National Pension Fund is projected to be depleted within thirty years. This paper examines whether short-term economic fluctuations affect fund projections and whether raising the target return can delay fund depletion. Using Vector Auto-Regression analysis, we find that contributions and returns are highly responsive to short-run fluctuations. However, business cycle volatility has a limited effect on fund forecasts. Our simulations suggest that increasing expected returns by taking on more risk can help delay depletion, even when accounting for increased volatility.