Research Staff

Research Staff




Challenges for Increasing the Enrollment Rate of Tax-Advantaged Accounts / Jan. 30, 2024
Many countries operate voluntary tax-advantaged accounts because limitations in public pension schemes make it indispensable for individuals to willingly accumulate retirement assets. Starting with pension savings accounts that have undergone several changes since their introduction in 1994, tax-advantaged accounts, including more recently adopted ones such as individual retirement pensions (IRPs) and individual savings accounts (ISAs), have been operating in Korea. Despite the growing importance of tax-advantaged accounts, as evidenced by a surge in contributions over the past decade, their enrollment rate remains moderate. Considering the significance of tax-advantaged accounts, active measures are necessary to boost the enrollment rate. One strategy to facilitate the enrollment of tax-advantaged accounts involves raising the currently insufficient level of tax benefits. Since 2014, tax benefits for pension accounts, including pension savings accounts and IRPs, have transitioned to a tax credit system that has been criticized for lowering enrollment rates across all income levels, contrary to expectations. Therefore, it may be worth considering reverting to tax deductions for pension accounts. To improve the enrollment rate among low-income groups, it seems more effective for the government to provide a direct matching contribution for individual contributions to pension accounts. The enrollment rate among individuals in their 20s lags behind that of ISAs. To encourage account enrollment of younger generations, it is necessary to broaden the scope of eligible financial assets and partially ease restrictions on early withdrawal. On top of that, financial institutions should offer personalized asset management services that align with the long-term savings nature of tax-advantaged accounts.
Tasks to Improve Competitiveness of the Publicly Offered Fund Market / Jul. 25, 2023
There are two problems at the core of the stagnant market for publicly offered funds. First, the market lacks competitiveness especially in the area of active equity funds. Second, it has no high-quality alternative investment funds. Although retail investors prefer passive management, equity ETFs in particular, active management has clear advantages, such as diversified risk-return profiles, and flexible adaptation to changes in the market environment. Active management is important for enhancing the long-term competitiveness of asset management companies as it improves their capabilities for designing products and management strategies. Hence, it is essential for AMCs to use proactive effort and investment in order to achieve the management target of active, publicly offered funds in a stable manner. For more convenient transactions of publicly offered funds, it is worth considering listing beneficiary certificates. Without the adequate supply of quality AI funds, it is hard to expect stable asset management for retail investors seeking portfolio diversification. Toward that direction, it is advisable to come up with policy incentives that encourage asset managers to design and supply AI funds in the publicly offered fund market. Also recommended is to induce institutional investors to invest more in publicly offered AI funds for growing fund sizes. AMCs should make utmost effort for increasing their principal investment seeking to secure competitiveness in the market.
Post-Pandemic Excess Household Savings in Korea: Current Status and Implications / Dec. 21, 2021
In the wake of the Covid-19 pandemic, reduced consumption and transfer income growth resulting from government relief payments have sparked the accumulation of a significant amount of excess savings by households around the world. Korea is no exception to this trend. According to available estimates, Koreans stockpiled more savings from the first quarter of 2020 to the third quarter of 2021 compared to the pre-pandemic average levels, leading to excess savings worth an average of KRW 3.1 million per household over the same period. When adjusted for the entire household sector, the aggregate amount of excess household savings reaches around KRW 67 trillion, equal to 3.5% of Korea’s 2020 nominal GDP. The accumulation of excess savings has been observed in most household segments, regardless of segment-specific features. In particular, higher-income households with a stable income flow have added a large stock of excess savings, which is primarily attributable to reduced spending. On the other hand, lower-income households suffering from income instability have amassed excess savings, largely thanks to transfer income growth. Much of the excess savings accumulated by households during the pandemic have been invested in capital market products such as stocks and funds. Given the characteristics of households with larger excess savings, a considerable portion of these accumulated funds is highly likely to remain in the capital market. To hold on to these investors, it is necessary to deliver stable returns, offer a wide range of products, and strengthen confidence in the market.
Market Liquidity in US Economy: Assessment and Risk Factors / Jun. 01, 2021
The US, an economy imposing tremendous impacts on the global economy and the financial markets, has adopted bold monetary and fiscal policy tools to pump in a massive amount of liquidity to the market since being hit by a full-blown pandemic in Spring 2020. As a result, the overall liquidity in the US economy measured by M2 reached an historic level in terms of the share of GDP, and the growth rate. The liquidity gap―the extent of market liquidity as a percent of GDP deviating from the trend data―stood at 11.4 percentage points in the second quarter of 2020 to surpass 6 percentage points for three consecutive quarters until the first quarter of 2021. During the four quarters after the outbreak of the pandemic, this helped accumulate a total of $6.3 trillion worth of excess liquidity that is far more than needed for economic activities such as consumption and investment. The quarterly liquidity gap is expected to accumulate for some time before falling gradually as the US economy rebounds. This is likely to lengthen the overvaluation in the asset market in the short run, which makes it hard to rule out the possibility of a downward reversal in asset prices. Moreover, a delay in macroeconomic policy normalization leading to higher inflationary pressure could inevitably result in monetary tightening much stronger than expected. This could quickly reverse the US economy from the expansionary phase to the recession phase.

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