As you know, in the IRP account, you need to invest 30% in safe assets, but it’s filled with securities that don’t match the market’s returns. I simulated what would happen if I invested all 9 million KRW in the pension fund account instead of the IRP account. Not investing in the IRP account means not receiving a 396,000 KRW tax deduction on IRP 3 million KRW contribution, and the hypothesis is that investing all in the pension fund account without receiving the tax deduction would yield better results. I approached this conservatively, and the conditions are as follows:

• Investment Period: 30 years
• Tax Deduction Rate: 16.5% applied (vs. 13.2%)
• Average Annual Return of Pension Fund Account: 6.0%
• Average Annual Return of IRP Account: 4.5% (70% risky assets * return 6.0% + 30% safe assets * return 1.5%)
• Comparative Valuation Amount: Investment Valuation Amount (simple principal * compounded return rate) + Tax Deduction Amount

​

The conclusion is that it is better to invest in the pension fund account. The conditions were approached conservatively, and you can see that from the 6th year onwards, the returns from investing in the pension fund account become higher. Of course, there might be some errors in this calculation approach. 1) The valuation amount calculation method is a simple principal * return rate, so it does not reflect volatility. 2) Future investment returns may be lower than 6.0%. However, assuming an investment period of over 10 years, volatility issues could be resolved, and I believe that the investment return rate will not likely be below 6.0%. Based on cumulative return rates, there is a difference of 25.5% at the 20-year mark and 61.3% at the 30-year mark. When conditions are based on a more realistic approach (return rate of risky assets 8.0%, return rate of safe assets 3.0%, tax deduction rate 13.2%), there is a difference of 40.0% at the 20-year mark and 106.2% at the 30-year mark!

​

Even though I understand it both mathematically and conceptually, I’m investing 3m KRW in the IRP account and receiving the tax deduction each year 🙂 It feels like realizing some income annually through tax deduction, and as I’m also contributing an additional 9 million KRW to the pension fund account and 20 million KRW to the ISA account annually, the IRP account’s 3m won allocation doesn’t become overly significant. However, if managing both accounts seems bothersome or if you want to optimize investment returns a bit more efficiently, considering an all-in investment in the pension fund account might be worth thinking about. I’ve attached an Excel sheet for simulation, but it’s a simplified format for calculations, so there might be some errors. Feel free to let me know if you spot any mistakes!

[Reference] Results based on the following criteria: Return rate of risky assets 8.0%, return rate of safe assets 3.0%, tax deduction rate 13.2%.

​

​