They said it would pay out 9 million won—but just 190,000? Pension insurance policyholders blindsided

[Financial News] Pension savings insurance, which many had expected to provide a reliable source of support after retirement, is falling far short of expectations when pension payments actually begin, leading to a string of disputes. Common cases involve policyholders mistaking the payout amount quoted when they signed up for a guaranteed sum, or suffering losses because they did not properly understand the rules on dividends and tax benefits.
On the 21st, the Financial Supervisory Service issued guidance titled “Consumer Precautions for Pension Savings to Ensure a Secure Retirement,” urging policyholders and those expecting to receive benefits to exercise particular caution.
Mr. A, who signed up for pension savings insurance in the late 1990s, was shocked recently as he prepared to start receiving his pension. He had been notified that his expected payout would be less than half the amount shown in the policy illustration he received when he signed up. That figure had been calculated during a period of high interest rates, which were in the 11% range at the time, but the low-rate trend continued and the minimum guaranteed rate (4.0%) was applied. Mr. B, who signed up for a participating pension savings insurance policy around the same time, also expected annual dividends of about 9 million won. But the amount he was actually quoted was only about 190,000 won—roughly 2% of what he expected—so he applied to the Financial Supervisory Service for dispute mediation.
The reason complaints have been concentrated around these cases lies in the structural features of interest-rate-linked pension savings insurance. The payout shown in the policy illustration is only an “estimated amount” calculated using the applicable rate at the time of enrollment; it is not a guaranteed sum. If market interest rates fall after enrollment and the applicable rate declines, the actual pension received can inevitably be much lower than the illustration. Dividends on participating pension savings insurance policies also vary each year depending on the insurer’s business performance, and the minimum guaranteed rate applied to the basic pension does not guarantee dividends as well.
The Financial Supervisory Service stressed, “Before signing up for pension savings insurance, consumers must check whether it is interest-rate-linked, the current applicable rate, and the minimum guaranteed rate that applies even if market interest rates fall.”
There is also a significant risk of losses from withdrawing accumulated funds early or surrendering the account. If a pension savings account is surrendered or funds are withdrawn early, other income tax of 16.5% is levied, effectively clawing back the tax-credit benefits. This is a major reason surrender values can be substantially lower than the principal. However, if the case is recognized under tax law as an unavoidable circumstance—such as death, moving overseas, a declaration of bankruptcy, a natural disaster, or illness—only the lower pension income tax rate of 3.3% to 5.5% is charged. To qualify, supporting documents must be submitted to the financial institution within six months of the date the circumstance is confirmed.
Payouts are not fixed even after pension payments have begun. With the “fixed-term” option, the remaining years of payments are calculated based on the accumulated balance, but the payout amount changes depending on fluctuations in the published interest rate or fund investment returns during the payment period. The amount received is also affected by changes in withholding tax based on the order of withdrawals and the source of the funds, such as personal contributions or investment returns.
Caution is also needed when using the “pension savings account transfer system” to switch financial institutions while retaining tax benefits. Transfers are restricted for accounts if the holder is already receiving pension payments, has an outstanding policy loan, or the account is subject to seizure or a pledge. Partial transfers are also not allowed, so policyholders should check with the financial institution in advance whether a transfer is possible.
The annual contribution limit for a pension savings account is 18 million won, of which up to 6 million won is eligible for a tax credit (12% to 15%, depending on comprehensive income). If withdrawals are made within the pension withdrawal limit after five years have passed since enrollment and once the account holder is at least 55, they are taxed separately at the pension income tax rate of 3.3% to 5.5%. If total annual private pension payouts exceed 15 million won, the recipient is taxed under either comprehensive taxation or separate taxation at 16.5%, at their choice.


[email protected] Moon Young-jin Reporter