[Practical Finance] Why and How to Physically Transfer Retirement Pension?

Since the 31st of last month, it has become possible to transfer retirement pension accounts. As a result, competition to attract customers in the retirement pension market, which amounts to 400 trillion won among financial companies, is heating up. However, the reality is that the majority of retirement pension subscribers still treat it as someone else's concern. Many do not even know what kind of retirement pension product they are subscribed to, nor do they understand why they should transfer. We have summarized the types of products eligible for retirement pension transfers and the points to consider when transferring.

Retirement Pensions Can Also Be 'Transferred' Based on Returns

Physical transfer of retirement pensions means moving the existing products as they are to another financial company's account. Until now, to change a retirement pension account, one had to either cancel the existing product or wait until maturity. This process was cumbersome and sometimes resulted in losses if canceled before maturity. However, with this new physical transfer service, subscribers can move to financial companies that offer better returns and suit their investment preferences.

There Are Specific Retirement Pensions That Can Be Transferred

Although transferring retirement pensions has become possible, there are things to consider beforehand. The key is the type of retirement pension product. Products eligible for physical transfer include deposits, equity-linked bonds (ELB), funds, and exchange-traded funds (ETF). Real estate investment trusts (REITs), money market funds (MMF), and equity-linked securities (ELS) still need to be liquidated and transferred as cash.

Depending on the characteristics of the retirement pension products and contracts, physical transfer may not be possible. This applies to default option products managed by financial companies without separate customer instructions, retirement pensions contracted as insurance, and contracts where the user designates different operators for management and asset management. In other words, default options (pre-designated operation system), REITs, and insurance products cannot be physically transferred.

It is also important to note that transfers are only possible within the same system. Retirement pensions are divided into Defined Benefit (DB), Defined Contribution (DC), and Individual Retirement Pension (IRP). Among these, individuals can transfer only DC and IRP types, and DC accounts can only be transferred to DC accounts, while IRP accounts can only be transferred to IRP accounts.

To transfer a DC account, one must check which retirement pension providers are designated by their company and choose from among them. The timing for changes varies by company, typically allowing 1 to 2 changes per year during specified periods. On the other hand, IRP subscribers can transfer their retirement pensions whenever they wish.

Even if the retirement pension is eligible for transfer, it is necessary to confirm whether the financial company to which you want to transfer offers the same product.

The government plans to consider allowing transfers for products not currently included in the transfer scope, such as physical transfers from DC to IRP, in the long term.

What Is the Procedure for Physical Transfer of Retirement Pensions?

Subscribers wishing to transfer their retirement pensions must open a retirement pension account with the new retirement pension provider (receiving company). Then, they submit a transfer application. The provider receiving the transfer application will guide the subscriber on the list of products eligible for physical transfer and other precautions, and confirm the subscriber’s final decision on the transfer. After the transfer is executed, the result is notified via text message or other means.

Going forward, the Ministry of Employment and Labor and the Financial Supervisory Service plan to release a "pre-check function" as early as the first half of next year to allow subscribers to check whether their held products are eligible for physical transfer for their convenience.

Fees Should Also Be Carefully Considered

If you decide to transfer your retirement pension, fees can also be a criterion when choosing a financial company. Typically, retirement pension fees range from 0% to as high as 1%, and for IRP, the fee rates vary significantly by financial company, ranging from 0% to 0.45%. For example, if you have 100 million won in an IRP account, fees can range from 0 won to 450,000 won depending on the financial company.

Generally, banks charge the highest fees, while securities companies charge the lowest. Some securities companies even offer free fees if you open an IRP through non-face-to-face channels. Additionally, securities companies offer a wider variety of products.

On the other hand, banks have better accessibility through face-to-face channels (branches), making consultations easier. Also, having an IRP account can qualify you for loan interest rate discounts. Among banks, Woori Bank is the only one that offers free fees for non-face-to-face account openings.