From September, Buy Treasury Bonds with Retirement Pensions... A "Sweet Combo" of Tax Breaks and Interest

10- and 20-Year Bonds Available in DC and IRP Accounts
Up to 9 Million Won in Annual Tax Credits and Low Tax Rates

Starting in September this year, office workers will be able to invest directly in "individual investment Treasury bonds" using their retirement pension accounts. With the stability of government bonds combined with the tax benefits of retirement pensions, investors preparing for their retirement assets are expected to show strong interest.

On the 18th, the Ministry of Finance and Economy announced that it will introduce a new system that allows investment in individual investment Treasury bonds through retirement pension accounts and will begin building related systems in cooperation with financial institutions.

As a result, investors will be able to hold and manage 10-year and 20-year Treasury bonds in their retirement pension accounts. However, defined benefit (DB) type retirement pensions, where reserves are managed under the name of the company or an insurance company, are excluded from eligible investments under the Government Bond Act, which requires purchases to be made under an individual's name.

The main advantage of the system is that the existing tax benefits of retirement pensions apply in full to Treasury bond investments as well. First, including pension savings, investors can receive a tax credit of 13.2% to a maximum of 16.5% on their contributions, up to an annual limit of 9 million won. In addition, interest income generated during the holding period of the Treasury bonds is eligible for tax deferral, meaning tax is not collected immediately. If the principal and gains at maturity are received as a pension after the age of 55, investors can also enjoy the benefit of separate taxation at a low tax rate of 3.3% to 5.5%.

In the financial sector, a total of nine institutions are preparing to launch the product in September. In the securities industry, seven firms are participating: KB Securities, NH Investment & Securities, Mirae Asset Securities, Samsung Securities, Shin Young Securities, Kiwoom Securities, and Korea Investment & Securities. In the banking sector, Treasury bond purchases will be available at two banks: NongHyup Bank and Shinhan Bank.

An official from the Ministry of Finance and Economy said, "With the introduction of this system, we expect that investors will be able to achieve a stable pension-building effect by using long-term Treasury bonds."