The government is facing pushback from investors after it limited maturity extensions for existing individual savings accounts (ISA) and rolled out a "productive finance ISA" that cannot invest in domestically listed overseas exchange-traded funds (ETF).
An ISA can invest in deposits and savings, domestic stocks, funds, and overseas ETFs, and up to 20 million won can be contributed each year. The mandatory subscription period is three years, and it can be extended starting three months before maturity, with no current cap on extensions.
The Ministry of Finance and Economy said through its tax reform plan on the 3rd that starting next year, ISA maturity extensions will be capped at five years and the carryover of the annual contribution limit will be banned. Currently, if one does not contribute 20 million won in a given year, up to 40 million won can be contributed the following year, and the plan is to block this.
Instead, the Ministry of Finance and Economy introduced a "productive ISA," which can invest only in domestic stocks, domestic equity funds, and the Public Growth Fund.
An ISA allows up to 4 million won of interest and dividends to be tax-exempt, and taxes any excess separately at 9.9%, so domestic investors have often used it to invest in overseas index ETF products such as the U.S. S&P 500 and Nasdaq ETFs. But as the maturity of existing ISAs is shortened to five years and the new productive ISA bans investments in overseas index ETFs, investors are expressing dissatisfaction.
An office worker surnamed Jeong, 30, said, "It looks like they are restricting overseas investment to boost the domestic stock market." Another office worker surnamed Lee, 29, said, "They are forcing a return to the 'gukjang' ("Korean stock market") by creating regulations."
Domestic investors are extending the maturity of their existing ISA accounts as much as possible or rushing to sign up before the system changes. On social media (SNS), posts are circulating saying, "After maximizing the ISA maturity extension, it became 2104," and "I opened an account for now even if I won't use it immediately."
A securities firm official said, "There is no limit on ISA account maturity extensions through this year. For ISA accounts that extended maturity in advance, the extension cap will not be applied retroactively."