JTYK Ensures Stability in Housing, Income, and Spending

Its subscribers’ MPC stands at 0.96, higher than that of those on public pension schemes 

Its replacement rate is 70%, 39%p higher than that of public pension schemes   

HF unveils the results of its study on JTYK’s impact on the national economy

A study found that JooTaekYeonKeum (JTYK)* gives seniors with insufficient retirement funds a stronger sense of psychological relief by ensuring a lifetime cash flow to them, thereby boosting their spending. It also reveals that JTYK subscribers’ marginal propensity to consume (MPC) stands at 0.96, higher than that of those on public pension schemes (0.76). 

   * JooTaekYeonKeum (JTYK) is a state-guaranteed reverse mortgage loan in which senior citizens 60 years of age or older provide their owned home as collateral and receive living expenses for their post-retirement life in the form of monthly pension benefits either for the rest of their life or for a certain period of time.

On the 12th, Korea Housing Finance Corporation (HF, CEO Lee Jung-Hwan) unveiled the results of its study on the impact of JTYK on the national economy. Conducted by Housing Finance Research Institute, the study analyzed the replacement rate* and marginal propensity to consume** of households on the JTYK reverse mortgage scheme based on HF’s annual survey on the demand for JTYK. 

    * The replacement rate refers to the percentage of an individual’s pre-retirement earnings replaced by retirement income, including pension entitlement, after the person retires. It is the indicator of the appropriateness of retirement income.

   ** The marginal propensity to consume (MPC) refers to the percentage of an aggregate raise in pay that an individual spends on consumption. The higher the MPC, the more the increase in consumption from extra income. 

   The data on the MPC and the total assets of households on the JTYK scheme are from 3,000 households that subscribed to the reverse mortgage scheme from 2016 to 2018, whereas the replacement rate data are based on 1,608 households with pre-subscription income records during the same period.

JTYK subscribers post a higher MPC than public pension subscribers 

   The study analyzed the MPC of senior households on the JTYK scheme. It found that their MPC stands at 0.96, a 0.2 point higher than the MPC of public pension subscribers (0.76). This means that 96% of JTYK payments are spent on consumption, while 24% of public pension payments are saved or invested. Assistant Research Fellow Baek In-Gul said, “This is because JTYK offers a more stable lifetime flow of monthly payments compared to public pension schemes, reducing the need for precautionary savings. Also, it transforms the less liquid equity in a home into liquid cash, easing future uncertainties and allowing for sustained spending after retirement.”

JTYK’s replacement rate averages 70%, 39%p higher than that of public pension schemes

 The study also assessed the replacement rates* of public pension schemes and JTYK. While the former’s replacement rate stands at 31%, JTYK reaches the average replacement rate of 70%. A high replacement rate means adequate income for a secure retirement. 

 * The Replacement Rate: The percentage of pre-retirement income replaced by retirement income. In the study, the rate is defined as the percentage of incomes from public pension programs and JTYK to the average pre-subscription monthly earnings. 

   Research Fellow Choi Kyeong-Jin said, “Given the high homeownership rate among those in their 40s and 50s, JTYK will remain a necessary means of securing a post-retirement income flow. It will not only ensure security in housing, income, and spending, but also can be harnessed as an economic stimulus strategy considering its implication on the national economy as a whole.”