Private pension reform in pipeline

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Private pension reform in pipeline

The Ministry of Strategy and Finance is moving to revamp private pensions for the first time in 12 years as the country’s population continues to age.

The move comes as part of its income tax reform plan, slated for announcement in February, to provide increased tax credits to the public and help them prepare financially for when they retire.

Private pensions, first developed in Korea in 1994, are tax-free. They have to be maintained for at least 10 years, but the new measure, if passed, will shorten this to five.

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The new system allows subscribers to have an integrated pension account combining their savings, insurance policies and fund investments. Previously, they would have needed three separate accounts.

Whereas pension holders now have their money disbursed to them in 60 monthly payments over a five-year period, the new system will allow this to be extended to smaller monthly payments over a period of up to 15 years. They can begin collecting any time from the age of 55.

“As the country moves towards an era of centenarians, the government plans to increase tax credits and ease the terms for subscription for pensions,” said an official at the finance ministry.

At present, private pension holders can only deposit up to 12 million won ($11,283) a year, but this will be raised to 18 million won if the revised bill is passed.

A quarterly limit of 3 million won will also be removed. The government set the limit in order to prevent the wealthy from enjoying too many tax breaks.

The government has also decided to outlaw the charging of fees on those who cancel their pension plans in the first five years. If they do so now they must surrender 2 percent of their accumulated pension savings.

Ahead of the government’s reform plan, banks and securities firms have temporarily selling private pensions.

By Song Su-hyun [ssh@joongang.co.kr]

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