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KMID : 1124020230390010043
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Korean Social Security Studies
2023 Volume.39 No. 1 p.43 ~ p.60
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The effects of catch-up limits on retirement-saving contributions: Evidence from South Korea
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Kim Do-Hyung
Jeon Byung-Mok
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Abstract
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We evaluate the effect of the “catch-up limits” introduced in 2020 for the individual retirement accounts (IRA) and DC plans on the amount of retirement savings using a nationally representative survey in South Korea. Exploiting the provision where the annual catch-up limit of two million won applies for those aged 50 or more, we employ a difference-in-differences method with those aged 49 or less a control group. We find that the catch-up limit of 2 million won increases annual contributions to IRA by 10 to 14 thousand won, but the estimated effect is not statistically significant. The lack of statistical power arises from the fact that only a subset of the working population contribute to private pension accounts in South Korea as well as the fact that the estimated effect may be driven by a few observations as is indicated in a graphic analysis. These findings suggest that a policy aiming to raise contributions among existing IRAs may be too limited in its scope and undesirable in its incidence.
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KEYWORD
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catchup limits, individual retirement account, DC plans, retirement saving
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