As domestic and overseas stock markets continued their rise, the return on retirement pension savings funds, which are individual pension products that allow investment in equity funds, topped 20% through the end of September this year. By contrast, over the same period, returns on retirement pension savings insurance were lower than the Bank of Korea's base rate (2.5%). As the weak returns of retirement pension savings insurance persist, more people are moving their accounts to retirement pension savings funds.
According to the Financial Supervisory Service on the 11th, the average return on retirement pension savings funds at 46 securities firms and trust companies came to 23.49% through the end of September this year. Last year's average return was 4.33%. Retirement pension savings funds are products in which subscribers can directly invest in equity and bond funds. The KOSPI index rose 42.7%, from 2,399.49 at the end of last year to 3,424 points at the end of September.
The average return on retirement pension savings insurance managed by 27 life and non-life insurers was 2.47% through the end of September this year. That is lower than both the 2.54% interest rate for one-year time deposits at commercial banks in September and the Bank of Korea's base rate. The 10-year average annual return was 1.74%, below the average annual inflation rate. Subscribing to retirement pension savings insurance is effectively a loss.
Retirement pension savings insurance accrues interest according to the posted rate that insurers calculate each month. The posted rate is linked to market rates such as Treasury and corporate bonds, but because business expenses and fees are deducted, the return is lower than market rates.
Retirement pension savings insurance guarantees principal, and life insurers' products can pay a pension for life, but they are being shunned due to low returns. If the pension has not yet started, one can transfer to a retirement pension savings fund without paying taxes. Last year, the number of retirement pension savings fund contracts reached 4.3 million, surpassing retirement pension savings insurance (4,119,000) for the first time.
The share of retirement pension savings insurance within all retirement pension savings fell from 74.4% in 2016 to 64.1% last year, while the share of retirement pension savings funds rose from 8.1% to 22.4% over the same period. The amount of reserves included in the return calculation for retirement pension savings insurance was 70.7001 trillion won at the end of the third quarter this year, down 313.2 billion won from 71.0133 trillion won at the end of last year. Over the same period, retirement pension savings funds increased 17.5%, from 17.8124 trillion won to 20.9352 trillion won.
The return on retirement pension savings trusts operated by banks was 5.32% through the end of September this year. As of the end of September, reserves stood at 8.3016 trillion won, down from 8.5761 trillion won at the end of last year. Sales of retirement pension savings trusts have been suspended since 2018.