The South Korean government has announced plans to expand deposit protection for pension savings, accident insurance benefits, and small and medium-sized enterprise retirement pension funds. This move comes in response to the recent Silicon Valley Bank (SVB) incident and aims to enhance the social security aspect of retirement income security and related products. The Financial Services Commission (FSC) plans to submit its position on deposit protection limits and deposit insurance premiums to the National Assembly by the end of August, after which discussions on the matter will commence.
The Financial Services Commission revealed on the 25th that it will revise the "Enforcement Decree of the Deposit Insurance Act" to include a separate deposit protection limit of up to 50 million won for pension savings, accident insurance benefits, and small and medium-sized enterprise retirement pension funds, in addition to regular deposits. The public has been granted a separate deposit protection limit of 50 million won for defined contribution (DC) and individual retirement pension (IRP) plans since February 2015.
The Financial Services Commission stated that there is a need to provide stronger protection for pension savings deposits to ensure that citizens can prepare for their future with confidence.
Under the current regulations, if an individual, Mr. A, holds protected bank products worth 50 million won, a pension savings trust of 50 million won, and a small and medium-sized enterprise retirement pension fund of 50 million won at Bank B, the maximum amount protected under existing laws is 50 million won, which combines the protected bank products and pension savings trust. In the future, both the protected bank products and the pension savings trust, as well as the small and medium-sized enterprise retirement pension fund, will each be protected up to 50 million won, resulting in total protection of up to 150 million won.
However, pension savings funds managed by asset management companies under dividend-type products are not subject to separate protection limits. Maturity insurance benefits that are paid upon expiration of insurance contracts are also not subject to separate protection limits.
The Financial Services Commission expects that the revision will not affect the deposit insurance premiums borne by financial institutions, as these products are already subject to deposit insurance premiums and the potential losses to the fund in the event of insolvency are minimal. Once the revision is implemented, it is expected to go into effect as early as later this year after undergoing legislative procedures and review by the Legislation Office.
Furthermore, the Financial Services Commission's joint task force with private experts is set to present comprehensive measures by the end of August, including adjustments to deposit protection limits and deposit insurance premiums. Jeon Yo-seop, head of the Financial Services Commission's Policy Planning Bureau, stated that they are currently organizing the government's position based on research results and expects discussions on increasing deposit protection limits to take place in the National Assembly in the second half of the year.
Currently, there are 11 pending revisions to the Deposit Insurance Act in the National Assembly, which aim to expand deposit protection limits. The deposit protection limit has remained unchanged since it was raised from 20 million won to 50 million won in 2001. Calls for an increase in the limit have gained momentum following the SVB bankruptcy incident in March. Kang Byung-won, a member of the ruling Democratic Party of Korea, recently submitted a revised bill that proposes increasing the deposit protection limit to a maximum of 200 million won.