[Practical Finance] Early Withdrawal from Pension Savings... IRP Accessible in Case of Bankruptcy or Natural Disasters

Smart Investment Life Tips

All have principal loss risk
Be cautious as funds are tied up long-term

13 Securities Firms Offer Free Commission Benefits
Future and Samsung Have the Lowest Pension Savings Fees

[Asia Economy Reporter Park Jihwan] Since pension savings and IRP are intended for retirement preparation, it is important to remember that a large sum of money may be tied up for a long period. In the case of pension savings, early withdrawal is possible, but for IRP, early withdrawal is only allowed under legally defined circumstances such as personal rehabilitation, bankruptcy, jeonse deposit, or natural disasters. If you want to withdraw part of the amount during the payment period for other reasons, you can only choose to fully terminate the account. In this case, a 16.5% miscellaneous income tax is imposed not only on the contributions that received tax deductions but also on the investment gains. The amount to be repaid may exceed the tax benefits received.

It is also important to note that both pension savings and IRP carry the risk of principal loss. Both products have the advantage of allowing investment in various products ranging from general funds to exchange-traded funds (ETFs), but as risk assets (non-principal-guaranteed products), there is a possibility of principal loss. In particular, pension savings funds can compose portfolios with risk assets such as equity funds without restrictions. It is possible to fill the portfolio with 100% equity funds, which can increase expected returns but also increases the possibility of principal loss due to high volatility. In the case of pension savings insurance, due to the nature of the insurance product where the premium paid minus business expenses is accumulated by applying the announced interest rate, negative returns may occur in the early stages of the contract. Even IRP, which limits the proportion of risk asset investments compared to pension savings, does not always guarantee profits. In fact, the IRP performance-linked fund yield fell to -5% in 2018.

Carefully taking advantage of free benefits such as fees provided by financial companies is also a way to enhance tax-saving effects. Since fees for pension savings and IRP occur over a long period, they can significantly affect returns. Currently, joining IRP through securities companies offers the greatest benefits. Thirteen securities companies including Samsung Securities, NH Investment & Securities, and KB Securities do not charge fees for IRP accounts opened online. In the banking sector, Woori Bank and IBK Bank do not charge fees for new subscribers.

Regarding pension savings fees, Mirae Asset Securities and Samsung Securities are among the cheapest. Fees incurred when trading ETFs are largely divided into securities company commission fees and related institution fees. Among these, Mirae Asset Securities and Samsung Securities waive commission fees when trading ETFs online. Since related institution fees are only 0.0036% and 0.0042% respectively, the fee burden is practically negligible.

There are also abundant cash and various prize benefits when subscribing to products. Samsung Securities is running an event until the end of this month offering up to 130,000 KRW benefits for deposits or transfers into pension savings or IRP accounts. Hanwha Investment & Securities gives ice cream gifticons to customers who newly open pension savings accounts and either set up automatic transfers of 250,000 KRW monthly for over a year or pay more than 3 million KRW. Mirae Asset Securities offers mobile gift certificates and other rewards to customers who newly subscribe at branches to pension savings or IRP accounts by purchasing pension funds worth over 300,000 KRW or transferring contracts worth over 10 million KRW to IRP accounts opened online by the end of the year.