Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
Individual retirement pension balance of major banks rises by $7.9 bil. due to aging society
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By Jun Ji-hye
Banks asked to improve low returns to raise effectiveness of pension plan
The total balance of individual retirement pensions (IRP) of Korea's five major banks has surged by more than 11 trillion won ($7.9 billion) over the past year to exceed 50 trillion won for the first time, according to industry officials Monday.
The rise is attributed to the country's aging population and enhanced tax exemption benefits for IRP account holders.
The combined IRP balance of the five major banks — KB Kookmin, Shinhan, Hana, Woori and NongHyup — amounted to 52.16 trillion won as of the second quarter of this year, up 11.12 trillion won, or 27.1 percent, from the year earlier.
The IRP balance of all the nation's financial institutions, including securities companies and insurers, came to 88.02 trillion won as of the first half of the year, up 21.27 trillion won, or 31.9 percent, from the previous year.
IRP is a retirement pension program in which subscribers can, when transferring to various jobs or retiring early, keep and manage their received retirement allowance until they actually retire. They can transfer a lump-sum retirement allowance to their IRP account without incurring retirement income tax and receive it as a lump sum or a pension afterward.
IRP holders are eligible for year-end tax deductions of up to 16.5 percent of the deposits they have paid throughout the year, with the cap set at 9 million won.
The improvement of returns from IRP products with principal and interest not guaranteed, led by the recovery of the stock market, has also had some positive impact on the IRP expansion.
The rate of return for such a product offered by Kookmin Bank came to 13.62 percent in the past year, representing the highest figure, followed by Hana Bank's 13.26 percent and NongHyup Bank's 12.9 percent.
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But skepticism about the effectiveness of the IRP programs continues to arise as more customers are still opting for products guaranteeing principal and interest that yield relatively poor returns.
The average return rate of such products offered by the five major banks was tallied at only 1.66 percent as of the second quarter.
These low returns are the result of many IRP accounts being neglected due to lack of care and proactive adjustments to the products in response to changes in financial conditions.
"As most of the IRP products guaranteeing principal and interest are operated in the form of fixed deposits, their rates of return are expected to fall further if key rates are lowered in the second half," an official from one of the major banks noted.
An official from another bank said it is necessary to grab consumers' attention by improving the products' rates of return.
"We are making consistent efforts to give more options to customers when opening their IRP accounts in a bid to improve returns," she said.