Negative Returns on Pension Savings? ... Life Insurance Association Claims "Serious Calculation Error"

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[Asia Economy Reporter Oh Hyung-gil] The life insurance industry has refuted a consumer group's claim that the return on pension savings insurance is 'negative' after deducting fees, calling it a 'flawed' calculation.

On the 13th, the Life Insurance Association stated regarding the press release titled "Pension Savings Return Rate is Negative After Deducting Fees," distributed by the Financial Consumers Federation the previous day, "There was a significant calculation error due to double deduction of fees while analyzing the pension savings return rate. The publication of unclear data raises concerns about consumer confusion and damage."

The Financial Consumers Federation claimed, "After conducting a full survey of the return rates and fee rates of pension savings sold by life insurance companies, the average annual return over the past 10 years was a low 1.18%, and after deducting the 1.75% fee, the return rate becomes negative, causing the accumulated funds to actually decrease."

In response, the Life Insurance Association pointed out that the publicly disclosed individual pension savings return rates already have fees deducted, so deducting fees again is a serious calculation error.

The Life Insurance Association explained, "The pension savings return rate is calculated by dividing the accumulated funds, which are operated by applying the declared interest rate after deducting fees from the premiums paid by the contract holder, by the premiums paid. Deducting fees again from the average annual return rate, which already has fees deducted as done by the Financial Consumers Federation, is a double deduction and a serious calculation error."

They also argued that simply averaging the figures from each life insurance company when calculating the return rate is an error because it does not reflect the proportion of accumulated funds of each company.

The pension savings return rates cited by the Financial Consumers Federation were calculated by simply summing the 1-, 3-, 5-, 7-, and 10-year return rates and dividing by the number of 18 life insurance companies.

However, the weighted average return rate over the past 10 years, calculated by reflecting the proportion of accumulated funds by each life insurance company, is 1.71%.

A Life Insurance Association official added, "The pension savings return rates disclosed to the association are calculated considering the elapsed period for the past period's return rates based on the reference point, so they cannot be simply averaged. Generally, it is appropriate to calculate return rates using a weighted average method based on accumulated funds."

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