[Practical Finance] Have You Just Left Your Retirement Pension Untouched? ... Secure Your Retirement with Customized Investments

Let's Manage Retirement Pensions Smartly
Market Expands but Office Workers Lose Interest
DB Type Entrusts Management to Company
Some Switch to DC Type for Direct Management

[Asia Economy Reporter Oh Hyung-gil] "How well do Korean office workers understand retirement pensions?" According to a survey conducted by Mirae Asset Investment and Pension Center targeting 1,000 office workers aged 30 to 59 nationwide, the retirement pension comprehension score was only 51.7 out of 100. As many as 83 respondents answered that they did not know their own retirement benefit system.

A financial investment craze is sweeping through 2030 office workers, from the stock market to cryptocurrencies. The trend represented by Donghak Ants and Coin Ants can be summed up in one phrase: "a dream of hitting the jackpot." However, experts unanimously advise focusing on retirement pensions as a long-term investment for stability and profitability.

The retirement pension market size is approaching 255 trillion won. Interest in retirement pensions is increasing due to prolonged low interest rates and tax deduction benefits, but it is still pointed out that it has not escaped the periphery of financial investment.

Unlike the retirement pay system where companies reserve retirement funds internally, retirement pensions are systems where employees' retirement benefits are accumulated with financial institutions. Financial institutions operate the retirement benefits under the company's instructions, and when the employee retires, the money is paid out as a lump sum or pension.

There are Defined Benefit (DB) and Defined Contribution (DC) types. The DB type entrusts the company with managing the retirement funds, and employees receive an average wage equivalent to 30 days per year of service, similar to the old retirement pay system.

On the other hand, the DC type allows subscribers to manage their retirement funds directly, so the pension amount varies depending on the returns. Recently, more office workers are switching early from DB to DC types.

Especially for salaried workers, there is also an Individual Retirement Pension (IRP) that individuals can subscribe to separately. It is a personal retirement pension product that helps prepare for old age and offers tax deduction benefits during year-end tax settlements. Choosing what to select is up to the individual, but it is advised to establish principles regarding retirement pensions.

Since retirement pensions are used as funds for old age, both stability and profitability must be considered, unlike general investment assets. Long-term investment is important to pursue both.

◆ Retirement Pension Selection Should Reflect Personal Preferences

The DC type retirement pension is suitable for those interested in financial investment.

The size of the retirement fund varies depending on the results of the employee's direct management. Employers pay at least one-twelfth of the employee's annual total wages as contributions each year. Employees manage the accumulated funds under their own responsibility and receive the pension or lump sum upon retirement.

Like the DC type, the individual IRP, which is also managed directly by the employee, offers tax benefits. Combined with pension savings, up to 7 million won (9 million won for those aged 50 or older starting this year) can be deducted from income tax at rates between 13.2% and 16.5%, depending on income. Similar to pension savings, pensions can be received after five years of subscription and after reaching age 55.

The Financial Services Commission has temporarily raised the individual IRP tax deduction limit to a maximum of 9 million won for seniors aged 50 and above until December 31, 2022.

If the comprehensive income exceeds 100 million won or total salary exceeds 120 million won, the tax deduction depends on whether the individual is subject to comprehensive financial income taxation. If financial income exceeds 20 million won and is subject to comprehensive taxation, even those over 50 can only receive tax deductions up to 7 million won.

◆ Banks Compete to Attract Individual IRP Customers

Recently, commercial banks have been promoting individual IRP sales through events. KB Kookmin Bank is running the "2021 Pension Flower Road" event for individual IRP subscribers until the end of June. All customers who meet the conditions receive a coffee coupon.

The event applies to customers who newly subscribe with at least 100,000 won to fund products from asset management companies participating in the event at KB Kookmin Bank and KB Securities, and who register automatic transfers of at least 100,000 won for over a year or newly subscribe with at least 1 million won.

Woori Bank is also holding the "IRP Breeze Blows" event until the end of June, offering prizes such as Dyson air purifiers and Samsung Cube air purifiers through a lottery among individual IRP subscribers.

Shinhan Bank offers Starbucks coffee vouchers through a lottery to customers who register automatic transfers for over a year on existing or new IRP accounts or make additional deposits (retirement pay, ISA maturity amounts, account transfer amounts) by the end of this month. Additionally, customers who make additional deposits are entered into prize draws based on the amount. For additional deposits of 3 million, 7 million, or 10 million won or more, Shinsegae mobile gift certificates worth 50,000, 100,000, and 500,000 won respectively are awarded by lottery.

Hana Bank is also conducting the "Individual IRP Startup Event" for individual IRP subscribers. This applies to new subscriptions of 100,000 won or more, automatic transfer registrations for over a year, new subscriptions of 300,000 won or more, and additional deposits of 3 million won or more.

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