If You Are Interested in Financial Planning, Choose a DC-Type Retirement Pension

NH Investment & Securities 100-Year Life Research Institute Publishes Retirement Pension Special 'THE100 Report No. 66' on the 5th

[Asia Economy Reporter Kum Boryeong] An analysis has emerged that the DB (Defined Benefit) type of retirement pension is suitable for workers whose salaries are expected to steadily increase. In contrast, the DC (Defined Contribution) type is found to be appropriate for workers with fewer opportunities for wage increases or those who are interested in financial investment.

NH Investment & Securities' 100-Year Life Research Institute announced on the 5th that it published the retirement pension special edition "THE100 Report No. 66," analyzing three topics including "DB or DC? Decide within the purpose of retirement preparation."

The DB type is a system where the "retirement benefit a worker receives upon retirement" is determined by the length of service and average wage. Employers annually contribute funds to financial institutions for external reserves and manage them. Workers can receive the confirmed retirement benefit as a pension or lump sum upon retirement. The performance of the DB type reserves belongs to the employer and does not affect the amount of retirement benefits received by the worker.

Jijinseon, senior researcher at the 100-Year Life Research Institute, explained, "DB is the best choice under the assumption that wages steadily increase until retirement because the payment is fixed by multiplying the average wage over the last three months before retirement by the years of service. It can be advantageous for workers in seniority-based companies such as large corporations who have many promotion opportunities. It is chosen by those who are not interested in asset management or financial investment and prioritize stability."

The DC type is a system where the "employer's contribution" is fixed at at least one-twelfth of the annual total wage. Employers pay contributions of at least one-twelfth of the worker's annual total wage each year, and workers manage the reserves under their own responsibility, receiving a pension or lump sum upon retirement. In other words, the amount received at retirement varies depending on the individual's investment performance.

Researcher Ji said, "DC is suitable for high-ranking workers with fewer wage increase opportunities, workers at small and medium-sized enterprises, and those interested in financial investment. Especially, workers approaching the wage peak system should switch to DC before the wage peak is applied. Workers interested in asset management can actively manage their retirement preparation funds."

Additionally, other reports examine "Retirement Pension (DC·IRP) Management Strategies in a Low-Interest Rate Era." They review the management status of major global pension funds and propose three strategies to increase retirement pension returns in a low-interest environment. "Overcoming the Income Gap Period with Retirement Pension" presents ways to use retirement pensions as bridge pensions during the income gap period before receiving the National Pension after retirement.

THE100 Report is available at NH Investment & Securities nationwide branches or on the website.

This content was produced with the assistance of AI translation services.