Samsung Life will eliminate all fees for Individual Retirement Pension (IRP) accounts starting August 1. The competition for 'zero IRP fees,' which began among securities firms, is now spreading to the insurance sector. In IRPs, which are managed over 10 to 20 years until retirement, even small annual fees of 0.1% to 0.3% can add up significantly. However, consumers should consider not just the 'free' label but also the investment products and services offered.
According to the financial sector on July 31, Samsung Life will waive management and asset management fees for all IRP accounts, regardless of the account opening time, channel, or contribution amount. Existing account holders will also benefit without needing to apply separately. Samsung Life is the first insurer to waive management fees for all IRP account holders unconditionally.
The typical fees charged by financial companies for IRPs include management and asset management fees. The management fee compensates the company for presenting products and processing account holders' investment instructions, while the asset management fee is for the custody and management of contributions. Although these fees vary by financial institution and account type, it has been common for the combined fees to deduct a certain percentage of the contributions annually.
For example, assuming an annual fee rate of 0.2%, a contribution of 50 million won would incur a fee of 100,000 won per year. If the contribution remains unchanged, this would total 1 million won over 10 years and 2 million won over 20 years. If the contribution is 100 million won, the fees would amount to 4 million won over 20 years.
The actual difference could be even greater. Money lost to fees also means lost opportunities for investment returns. If 50 million won is invested at an annual return of 4% for 20 years, incurring an annual fee of 0.2% would result in a final asset difference of about 4.14 million won compared to having no fees. For a contribution of 100 million won, the difference could grow to about 8.28 million won. This simplified calculation assumes a constant annual return but illustrates how fees can erode compound growth in long-term investments.
The competition to lower IRP fees is also continuing among banks and securities firms. Major securities firms, including Shinhan Investment Corp. and Mirae Asset Securities, are waiving management and asset management fees for IRP accounts opened online. Some firms have extended these benefits to accounts opened in person. Major banks are also waiving or discounting fees if certain conditions, such as online account opening or maintaining a minimum contribution amount, are met.
It is important to note that 'free IRP fees' does not mean that all costs within the account are zero. The fees typically waived by financial companies are the management and asset management fees. When purchasing funds within an IRP, additional costs such as fund management fees and sales commissions may apply. Exchange-traded funds (ETFs) also incur total fees for the product itself and costs associated with transactions.
When choosing an IRP, it is essential to consider the characteristics of different financial sectors. Securities firms generally offer a wider selection of performance-based products like ETFs and funds, while banks and insurance companies tend to focus on principal-protected products like savings accounts or guaranteed interest insurance, which may be easier for some investors to choose. Even within the same sector, the types of ETFs and funds available for trading and the interest rates on principal-protected products can vary by financial institution. Saving 100,000 won in fees annually may not be beneficial if it results in a lower return due to a lack of desired products or higher interest options.
For those with limited investment experience, advisory services can be just as important as fees. It is crucial to check whether the service offers guidance on retirement fund allocation and pension withdrawal methods, whether it is easy to switch products and check returns via an app, and whether it provides portfolios that match the investor's risk profile. The Financial Supervisory Service's integrated pension portal allows users to compare total fees, management and asset management fees, and total costs of funds by financial institution.
A financial sector official advised, "Before transferring an IRP, confirm whether you can transfer your existing products as they are or if you need to sell them. Early termination of products may result in losing guaranteed interest or realizing losses based on market prices at the time of sale."
* This article has been translated by AI.
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