Military fund to raise payouts with interest rate increases

South Korea’s Military Mutual Aid Association (MMAA) has decided to raise the interest rates of the members’ savings products by 25 to 40 basis points (bps), the largest interest rate increase ever, the retirement fund said on Monday.

Accordingly, the range of its savings products' interest rates will rise from 2.8-3.6% to 3.2-3.85% as of July 1. It means more than 31.5 billion won ($24.5 million) worth of payouts to the members, an MMAA official said.

The retirement fund for Korean military service members had adjusted interest rates once a year through 2021; this year, it has raised the rates three times including the one to take effect on July 1. The fund’s increased interest rates are at a higher level than any other Korean retirement fund, the official added.     

The interest rate hike came from the retirement fund’s investment management performance last year, MMAA said. In March, the military fund posted 348.3 billion won in annual net profit for 2021. It was more than double the previous year’s net profit of 149.6 billion won, and more than quadruple the average annual net profits from 2017 to 2021, 88.7 billion won.  

MMAA's total assets reached 14.37 trillion won as of end-2021, up 1.67 trillion won from the previous year. The capital surplus, the total assets minus a lump-sum payment of the members’ principal and interest, amounted to 1.23 trillion won last year, the highest since the foundation of the fund.

MMAA stated that the last year’s performances came from its well-diversified investment portfolios. As of end-2021, the retirement fund allocates 24% of its total assets to alternative investment, 23% to public real estate, 9.1% and 8.5% to public bonds and equities, respectively.

During the ASK 2022 forum in May, the fund's Chief Investment Officer Lee Sang-hee said MMAA will increase investment in growth sectors like electric vehicle batteries and focus on portfolio diversification this year. While intensifying investment strategies for developed countries, the fund is considering taking a selective approach to distressed and special situation strategies, Lee added in the forum.

Write to Tae-Ho Lee and Jae-Fu Kim at thlee@hankyung.com
Jihyun Kim edited this article.