[비즈한국] The year-end bonus season has arrived, but a growing number of office workers are worried they won't receive a dime, let alone a large sum. However, there is a bonus that individuals can look forward to: the "13th month's salary," or the year-end tax settlement.
This year, let's focus on pension tax deductions among the various year-end settlement items. For pension savings or Individual Retirement Pension (IRP) accounts, there are no monthly or quarterly contribution limits, so you can receive benefits even if you contribute the full amount by the last day of the year. The maximum annual tax deduction limit for pension savings is 6 million won, and for IRPs, it is possible to get a tax deduction for up to 9 million won.
While other deduction items involve getting back or paying more based on your actual expenses, pension tax deductions are efficient for asset accumulation because they not only provide tax-saving benefits but also allow you to reinvest those savings back into your pension. This is why the financial industry tends to step up pension marketing efforts as the year-end approaches, targeting the tax settlement season.
Of course, when considering long-term investment, it is more important to paint a bigger picture for retirement rather than just focusing on year-end tax settlements. Most of the younger generation already believe that the National Pension will be exhausted and they won't be able to receive it. Experts emphasize that it is crucial to prepare for retirement funds in advance because even if you receive National Pension payments after reaching retirement age, the amount will be woefully insufficient to cover living expenses. Therefore, now is the time for the wisdom and interest to set up private pensions early for your future.
The default option, introduced last year, is a system that allows retirement pension assets to be automatically invested in a pre-designated product if the subscriber does not provide specific investment instructions. Previously, if a subscriber did not decide which financial products to invest their retirement savings in, most of the funds were managed in principal-guaranteed products like savings deposits. However, there has been much criticism that investing solely in principal-guaranteed products is not suitable for retirement preparation in the long term due to low returns. The introduction of the default option helps improve returns by allowing for more active pension management.
Last September, 25 asset management companies launched "Didim Funds" under the "one company, one fund" principle. Didim Funds are asset-allocation funds that invest in a diversified range of assets, much like Target Date Funds (TDFs), which are a type of retirement pension product. However, unlike TDFs, Didim Funds cannot allocate more than 50% of their portfolio to risky assets such as stocks.
While TDFs adjust their investment strategy as the target retirement date approaches—by reducing the proportion of risky assets like stocks and increasing the proportion of safe assets like bonds—Didim Funds maintain the proportion of risky assets within a consistent range compared to TDFs.
Didim Funds are also called Balanced Funds (BF) in that they offer better profitability than principal-guaranteed products like savings deposits, but pursue more stable returns compared to other products like TDFs or Exchange Traded Funds (ETFs). Since each management company has a different basic investment strategy or asset class for its Didim Fund, you should carefully examine each company's product through fund prospectuses and other materials.
If you find principal-guaranteed products underwhelming but feel uneasy about investing in products with high proportions of risky assets like stocks, you may want to take an interest in Didim Funds. If you wish to sign up for a Didim Fund, you can do so through your securities company app after opening an IRP account.
A downside is that the availability of Didim Funds is limited to securities firms, and they have not yet been approved as a default option. In other words, you must research and sign up for them yourself. However, considering the potential for lower bank interest rates in the future, leaving your money as cash is not the right move for long-term investment. You must invest consistently, whether directly or indirectly. Consistency is how you beat the market.