"Essential item for the 100-year lifespan!"
This phrase, often used in advertisements for supplements and medical devices, frequently appears in marketing in the financial sector as well. As life expectancy increases, so does the retirement age. According to the Organization for Economic Cooperation and Development (OECD), the average retirement age for Korean men in 2022 was 65.4 years, while for women it was 67.4 years.
The 2030 generation, who finds it difficult to purchase homes immediately, and the 4050 generation, who have to worry about child-rearing costs and supporting parents, often hesitate to start pension investments. However, considering that life expectancy after retirement is over 30 years, the essential item for the true 100-year lifespan is likely a pension that can support one’s living expenses without labor.
Private pensions, or personal pensions, are systems that support retirement preparations at the individual and corporate levels rather than at the national level. Investment products that investors can join on their own fall into two categories: pension savings products and Individual Retirement Plans (IRP), with annual contributions allowed up to 18 million won for both products combined. Contributors can also receive a tax credit of up to 9 million won annually (6 million won for pension savings and 3 million won for IRP).
Recently, competition in pension savings has intensified, particularly among securities firms, with Kakao Pay Securities entering the market for the first time in November of last year by launching a pension savings fund.
Since its launch in 2020, Kakao Pay Securities has gained attention as a mobile securities firm alongside Toss Securities. However, it has not been able to maintain growth as anticipated by the market. Its performance improved last year, reducing its net loss to 10.5 billion won in the first quarter, 9.3 billion won in the second quarter, and 6.3 billion won in the third quarter, yet losses are still ongoing.
However, in the pension sector, the firm has seen success, surpassing 100,000 accounts just two months after launching its pension savings products. It has been evaluated that they are effectively utilizing their platform advantages in a market where existing securities firms dominate. Kakao Pay Securities plans to expand its pension product services this year and focus on securing more investors.
ChosunBiz recently met with Im Seul-bit, manager of the pension product team at Kakao Pay Securities, to discuss the strengths of Kakao Pay Securities' pension savings and investment know-how using personal pensions at the start of the year. Having worked as a product owner at a corporation since 2018, he joined Kakao Pay in 2021, working in the investment sector, and later transitioned to the PM team at Kakao Pay Securities in 2022, participating in the entire process of launching the pension savings product. The following is a Q&A session.
It is said that it is better to enroll in a personal pension plan while you are still young, but it is also a product that makes people hesitate when it comes to actual enrollment. Are there advantages to enrolling in a personal pension?
"Generally, pension savings products are mainly used for retirement preparation. However, it is true that the young generation may not resonate well with the term 'retirement preparation.' Upon reviewing the subscribers, it is common for them to start considering pension products after having their first child.
Given this, it is necessary to approach personal pensions by focusing on the benefits of tax credits rather than just retirement preparation. Both the pension savings and IRP follow similar policies, but there are differences in the details. While the IRP is relatively conservative in terms of return by lowering investment and withdrawal freedom, it enhances the security of principal preservation, whereas pension savings offer relatively greater freedom.
Annual contributions can total up to 18 million won for both pension savings and IRP, with tax credits available for 6 million won and 3 million won, respectively. Contributions can be received as a pension after the age of 55, subject to a pension income tax of 3.3% to 5.5%. Until then, the tax-exempt amount can be reinvested to increase operational revenue. Also, in pension accounts, taxes are levied on net profits reflecting losses, resulting in a lower tax burden compared to regular accounts, which tax profits regardless of losses.
If it is advantageous to enroll in both pension savings and IRP, which product should one enroll in first? Also, is it a viable investment strategy to diversify pension savings among different securities firms?
"Generally, it is advisable to prioritize pension savings. Pension savings can invest 100% in risky assets, while the IRP allows only 70% for risky asset investments, making it relatively less favorable in terms of revenue. Additionally, early withdrawal from the IRP is not permitted unless specified reasons occur by law. However, pension savings can be withdrawn freely, albeit with conditions for portions that received tax benefits.
Policies regarding pension savings products are essentially the same. There may be discrepancies in trading commissions among securities firms, but the trading commission for domestically listed exchange-traded funds (ETFs) is generally set around 0.015%. Therefore, it is suggested to compare the products of various securities firms and choose the one that is most advantageous. Of course, the number of accounts that investors find manageable may vary, so it is acceptable to set different thresholds and create multiple accounts across securities firms.
Kakao Pay Securities has also entered the competition for pension savings. Does Kakao Pay Securities have any distinctive features in its pension savings?
"We actively leveraged the advantages of our platform. Upon using various securities firms' mobile trading systems (MTS), I noted that while stock trading has seen significant improvements recently, there are still many shortcomings in the pension savings area regarding user interface (UI) and user experience (UX).
Investors generally find pension savings accounts more difficult to navigate than ordinary stock accounts. Kakao Pay Securities has focused on building services to ensure that users receive only clear and concise information that is genuinely necessary.
In particular, Kakao Pay Securities has about 7 million users using its comprehensive accounts, and these users have had their account opening process significantly shortened to nearly 5 seconds, excluding the time spent for agreement and personal information consent, without any separate real-name verification process.
Is it possible to open a pension savings account in less than a minute?
"In general, other firms do not provide services in this structure. Even if one uses a basic securities account, a real-name verification process is usually required when opening a pension savings account. However, we have allowed users who have already opened comprehensive accounts through real-name verification to enroll in pension savings with only the necessary agreement on terms, eliminating the need for investors to inconvenience themselves by performing the same action twice. With just 1 to 2 steps, they can open an account immediately, while some other firms have over 30 steps in their enrollment process.
If there is a pension savings service that you have focused on the most, what would that be?
"The pension savings business team has been preparing the service for three years, and last year the product team joined in. While trying to present the service in an easy and simple manner, there were concerns that the product of pensions could be perceived as too lighthearted. Balancing these concerns while implementing suitable terms for the pension savings service so that investors can easily understand and use it has been challenging.
Kakao Pay and Kakao Pay Securities use terms like 'charging' and 'filling' instead of 'depositing,' but we judged that such terms do not fit well with pension, so we used 'contribution' to help investors recognize it clearly.
In pensions, there is a service called 'conversion exception,' which allows contributions exceeding previous deduction limits to carry over for tax credits the following year without additional contributions. Many investors are unaware of this feature, so we titled it "Getting a tax credit for this year's contributions" to incorporate the term 'conversion exception.'
If there are investment know-how that can be utilized in pension savings products, what would they be?
"During the service launch, we focused on the fact that investors are often unaware of many things, starting from awakening their needs about what they can gain through pension savings products.
For example, while other companies offer 'transfer services,' investors do not understand the necessity of transferring their pension products. Kakao Pay Securities offers a service called 'Move Your Pension Here,' explaining why one should transfer and what pension savings insurance products are available.
There is a strong perception that pension savings products should be managed conservatively. However, finding joy in investment through direct management is also an attraction of pension savings. In this process, revenue can also be increased. Personally, it is suggested that if one wants to maintain a conservative perspective, investing in maturity-bond type ETFs to secure an annual yield of over 4% would be advantageous.
If one gains a bit more courage, utilizing features like 'stock accumulation' is also recommended. As a planner for pension savings products, investing in domestic listed U.S. index ETFs and dividend ETFs applying covered call strategies may present attractive options for long-term asset appreciation.
It should be noted that creating a U.S. dividend ETF within a pension account provides various tax benefits, including tax deferral, and we are contemplating a service that visualizes how much these tax benefits amount to.
Although pension savings products allow one to withdraw at any time, it can be daunting to do so because taxes are also deducted. It is said that this statement is partly true and partly false.
Many investors believe that taxes are always deducted when withdrawing money. This creates a kind of fear where they think their money is locked up from the moment they deposit into pension savings.
However, before receiving the year-end settlement, one can continuously invest within the account without taxation on withdrawals. If you deposited 6 million won at the beginning of the year, you can withdraw the full amount of 6 million won at any time before the year ends, as you haven't received the year-end settlement yet. If you gain revenue from investments, only the revenue portion will be taxed, while the principal remains intact.
What are the future plans for launching Kakao Pay Securities' pension product services?
"We aim to make investors clearly aware of the benefits available to them, which they may have overlooked, guiding them towards more profitable paths. With this perspective, we plan to launch services that showcase investable items or advantageous portfolios. We also intend to expand our offerings to include real estate investment trusts and public funds.
Another aspect that we consider to be of utmost importance is the recipient. Since benefits commence only five years after the subscription date, we haven’t opened the service, but we intend to systematize factors such as what to liquidate first and how much to divide monthly to optimize benefits.
Rather than merely improving existing pension product services, we aspire to set new standards within the scope of pension services.