Financial institutions in South Korea, including insurance companies, have been busy with plans to attract customers who wish to switch the companies managing their pension accounts.
Starting today (31 October), pension subscribers are allowed to shift their accounts to other financial companies without having to terminate the pension plans with the pension fund manager they wished to move from.
According to the Financial Supervisory Service, as of 30 September 2024, total pension funds amounted to KRW400.79tn ($290bn). Of this total, insurance companies accounted for KRW93.27tn (23.3%); banks, KRW210.28tn (52.6%); and securities companies KRW96.53tn (24.1%).
Insurance
However, in the case of insurance companies, the room for manoeuvre is narrower because most of the managed pension funds are placed in insurance-type asset management plans. Transfers are barred if the default option product or retirement pension contract is in the form of an insurance contract.
Products that can be transferred include most major pension products, such as principal and interest guaranteed products in the form of trust contracts, mutual funds, and listed index funds (ETFs). In addition, transfers are allowed only if they involve the same kind of scheme, such as a defined benefit (DB), defined contribution (DC), or individual retirement pension (IRP).
In December 2005, the government introduced the Retirement Pension Plan, which can take the form of either a Severance Pay System or a Retirement Pension Plan. The Retirement Pension Plan is of one of three types: DB Plan, DC Plan or IRP. Subscribers can receive gains made from the investment of their pension funds, either as a lump sum or monthly pension. The funds are managed by a pension fund manager which could be an insurer, a bank or a securities firm.
Switching a retirement pension account to another pension fund manager used to involve product termination costs and losses were incurred in the process of purchasing new products. Accountholders can make the switch now without surrendering the existing product.