Financial firms conduct aggressive marketing campaign for customers


The total amount of Korea’s annuity savings has surged on the greater need for post-retirement plans and increased tax benefits, data showed Thursday.

According to the Financial Supervisory Service and Woori Investment & Securities, the combined total of personal annuity savings held by local lenders, banks and fund management firms was estimated at 75 trillion won ($66 billion) as of end-December last year, up 25 percent from a year earlier.

The annuity savings market had posted about 10-percent growth between 2007 and 2010, and the sudden rapid expansion last year was largely attributed to the regulatory change that added more tax dedication benefits.

The impetus for strong growth came from the revised rule that increased the maximum tax deduction from 3 million won to 4 million won for annuity savings. The expanded tax deduction is now applied to the installments paid last year, which will lead to bigger tax returns for subscribers next month.

Korean workers increasingly see retirement pension programs and personal annuity savings as an important part of their financial management to prepare for their post-retirement life.

The number of personal annuity savings accounts that met the conditions for more tax deductions stood at 6 million as of September’s end.

Financial firms also staged strong marketing campaigns that encouraged customers to put more money in their annuity vehicles, especially targeting salaried workers whose tax dedication benefits have been steadily cut over the years.

The biggest proportion of annuity savings products is held by the insurance variety, accounting for 45 trillion won. Insurance companies recently ratcheted up the interest rate to 5 percent per year for their products, which is far more enticing than about 3 percent interest income provided through banks’ installment savings.

A growing number of customers are also opting for high-return personal pension products to offset the long-held low interest rate and the surging inflation. While the Bank of Korea kept the benchmark rate unchanged at 3.25 percent for the seventh straight month this month, the country’s inflation turned out to have hit 4 percent.

One of the popular instruments that seeks greater profits at higher risks is annuity savings funds, which track the stock market to produce better returns. The total of the vehicle rose to 3.1 trillion won, posting more than 45 percent growth year-on-year. The annual yield of annuity savings funds, however, was disappointing at minus 11.5 percent in the past year, hurt by the eurozone fiscal crisis and the concerns about the domestic economic slowdown.

By Yang Sung-jin (insight@heraldcorp.com)