Funds are flowing out of annuity savings insurance, an annuity savings product sold by insurance companies. There is an increasing number of people switching to annuity savings funds, which are expected to offer higher revenue, from annuity savings insurance, which struggles to provide an annual revenue of 3%.
Annuity savings are a long-term investment product for retirement preparation. If you accumulate retirement funds for more than five years in annuity savings, you can start receiving annuities based on the accumulated amount after turning 55. By contributing 6 million won annually, one can maximize tax credit benefits during year-end tax adjustments. Products operated by insurance companies are annuity savings insurance, while those operated by securities companies are annuity savings funds. Banks operate annuity savings trusts but ceased product sales in 2018.
According to the Financial Supervisory Service on the 20th, the accumulated funds for annuity savings insurance were 71.66 trillion won last year, a decrease of 588.2 billion won from the previous year (72.24 trillion won). The insurance company that saw the most significant decrease in accumulated funds was NH NongHyup Life Insurance, which dropped by 206.3 billion won over the year. Following this, Samsung Life Insurance (decreased by 129.4 billion won) and Meritz Fire & Marine Insurance (decreased by 33.8 billion won) also saw decreases in accumulated funds. The accumulated funds for annuity savings insurance had increased every year from 70 trillion won in 2021 to 71 trillion won in 2022 and 72 trillion won in 2023, but the upward trend has reversed since last year.
Funds that have flowed out of annuity savings insurance have moved into annuity savings funds. The accumulated funds for annuity savings funds were 17.81 trillion won last year, an increase of 1.67 trillion won from the previous year (16.13 trillion won). The accumulated funds for the annuity savings trust, which has been discontinued, decreased from 9.50 trillion won during the same period to 8.58 trillion won.
The outflow of funds from annuity savings insurance is attributed to low revenue. Last year, the revenue for annuity savings insurance was 2.61%, lower than that of annuity savings funds (4.3%) and annuity savings trusts (5.5%). The revenue for 2023 also recorded 2.58%, ranking last. It barely keeps up with bank savings and deposits.
Despite the low revenue, the popularity of annuity savings insurance is due to its safety. When depositing money with an insurance company, they secure the principal while paying interest linked to market interest rates, thereby increasing the annuity amount. Since it is funds prepared for retirement, many prioritize principal protection.
In contrast, annuity savings funds require customers to directly invest in various funds such as equity, bonds, or mixed types to generate revenue, which can lead to principal losses. In fact, the revenue for annuity savings funds recorded -18.8% in 2022 due to a global stock market crash, while annuity savings insurance performed better at 2.1%.
However, there has been a growing tendency to pursue higher revenue even by taking risks, making annuity savings funds popular. Annuity savings are products that require long-term investment for at least 10 years, even in years when the stock market is in decline, long-term revenue expectations remain high. In fact, the 10-year average revenue for annuity savings funds is 1.93%, higher than that of annuity savings insurance (1.68%).
The revenue for annuity savings insurance is expected to decrease further due to the trend of lowering benchmark interest rates. Annuity savings insurance pays interest based on announced rates linked to market interest rates, so if rates fall, the interest received also decreases. The Life Insurance Association has stated its intention to strengthen the role of life insurance in the private pension market each year, but it has not found a sharp solution.
A representative from the insurance industry noted, "It seems difficult to raise the revenue of annuity savings insurance due to interest rates," and said, "As more people opt for funds for their annuities, it is challenging to emphasize the unique advantages of insurance.