[Housing Pension Innovation] ① Public Sector Has Accumulated 130,000 People... "Private Market Is on the Verge of Disappearance"

Public Sector Leads Korea's Housing Pension Market
Private Products Exist but Are Virtually Defunct
Rising Demand... Public Sector Alone Cannot Meet Needs
Experts Say "It's Time for the Private Sector to Step In"

As the country enters a super-aged society, the housing pension market is expanding, but it has been revealed that there is a serious concentration on the public sector domestically. The public sector leads the market with a cumulative subscriber count approaching 140,000, while the private market is virtually dormant. As the elderly population grows and housing prices rise, a blind spot is emerging where people want to subscribe to housing pensions but cannot.

Private products exist but sales are extremely low... Demand says "Less attractive than public"

The domestic housing pension market is centered around the housing pension sold by the Korea Housing Finance Corporation (KHFC). Since the first sale in 2007, the number of subscribers to KHFC’s housing pension product has steadily increased. The number of subscribers, which was 515 in the first year, exceeded 100,000 in 2022 and reached 137,887 as of February this year.

The increase in demand is due to the growing elderly population, but KHFC has also actively improved the system. Over 18 years, the minimum subscription age was lowered, housing criteria were raised, and product types diversified to expand consumer choice. Above all, the lifetime annuity type, which allows people to live in their own home while receiving a lifelong pension, and the non-recourse product, which does not require repayment even if the pension amount exceeds the value of the mortgaged house after death, are evaluated as factors that attracted demand.

While the public housing pension grew, the private sector was passive in product development or introduction. Neither demand nor supply found this market attractive. From the demand side, there was no incentive to subscribe to private products when KHFC’s government-guaranteed product existed. From the supply side, it was difficult for private financial companies to design profitable products. A representative from a commercial bank said, "The public sector effectively covers all houses with official prices under 1.2 billion KRW, so there was no strong incentive to actively enter the market."

After more than a decade, the private market itself is on the verge of disappearing. The three major domestic banks (KB Kookmin, Shinhan, and Hana Bank) handle housing pension products, but sales are extremely low. Unlike public housing pension products, private products are non-lifetime types with a maximum loan term of 30 years and are recourse products requiring repayment of the difference if the pension amount exceeds the value of the collateral house. Thus, there is no incentive for consumers to choose private housing pension products.

Housing pension blind spots may widen... "We must seriously consider revitalizing the private sector"

The housing pension market is expected to grow further. As the elderly population surpasses 10 million, demand for housing pensions is increasing. Especially in Korea, the elderly hold a high proportion of their assets in real estate. According to Statistics Korea, the proportion of real estate in elderly households’ assets rose to 81.3% last year.

The problem is that as the elderly population grows and housing prices rise, it is becoming difficult for the public sector to meet all demand. It is particularly challenging for the public sector to cover owners of high-priced homes. The structure is such that the higher the home price, the higher the monthly pension amount, but limited resources create clear constraints. This conflicts with the founding purpose of supporting low-income people and may attract criticism. For the same reason, multi-homeowners cannot subscribe to public housing pension products. Thus, a blind spot is emerging where people want to subscribe to housing pensions but cannot.

The elderly’s perception of retirement preparation is also gradually changing. A financial sector official who surveyed housing pension demand said, "In the past, there was a strong perception that the house was an inheritance asset, so people were reluctant to subscribe to housing pensions using their home as collateral, but nowadays the atmosphere has changed. There is a stronger awareness that one must take care of their own retirement without expecting support from children." This indicates that even owners of high-priced homes are forming a willingness to subscribe to housing pensions.

Kim Jae-chil, Senior Research Fellow at the Korea Capital Market Institute, said, "Only a very small portion of households can prepare for retirement through personal pensions, so it is time to find ways to expand the private housing pension market."

There are also calls for the role of finance to change in response to the super-aged era. Jo Eun-ah, Head of the Financial Stability Research Team at the Bank of Korea, emphasized, "While the financial sector has mainly helped households expand assets through leverage, going forward, its role should be strengthened to help smooth assets and income over the life cycle, such as through the annuitization of real assets."