[Digital Today reporter Sangyeop Oh (오상엽)] Interest is focusing on the final direction of changes if the government decides to take another look at its plan to revamp Individual Savings Accounts (ISA). In Japan, Britain and Canada, tax-advantaged accounts are being operated to allow long-term use or to let investors reuse unused contribution limits.

On Aug. 12, the financial investment industry said the government is reviewing ways to scrap or ease a ban on rolling over contribution limits and a maximum 10-year maturity cap that it had planned to apply to the productive finance ISA.

The scope of the review has expanded to the productive finance ISA, after the government began considering keeping the current rules for extending maturities and rolling over contribution limits for existing ISAs.

In the initially released revamp plan, the contract period for existing ISAs was to be limited to 5 years, made up of an initial 3 years plus up to 2 additional years. It also planned to abolish the rollover of unused contribution limits. The newly created productive finance ISA would also bar rollover of annual contribution limits, with a maximum contract period set at 10 years.

Investor backlash continued, saying the plan did not fit the purpose of a tax-saving account for long-term investment. President Lee Jae-myung (이재명) ordered a full reconsideration of the plan on Aug. 7.

It was reported that an option to redesign the productive finance ISA is also being considered. That is because it could become relatively disadvantageous if the government reverses rollover and maturity limits for existing ISAs while keeping the same limits only for the productive finance ISA. Specific supplementary measures have not yet been finalised.

The productive finance ISA is a new account designed to draw long-term funds into the domestic capital market. Eligible investments include domestically listed stocks, domestic equity funds, the National Growth Fund and business development companies (BDC). It cannot include overseas index-tracking exchange-traded funds (ETF) listed on the domestic stock market. The structure expands tax benefits and total contribution limits compared with a regular ISA.

In actual ISA management by domestic investors, preferences for overseas index products are high, raising doubts about the plan's effectiveness even before it was unveiled. The Korea Financial Investment Association said listed funds including overseas index ETFs accounted for 32.0 percent of brokerage ISAs at end-June, the second-highest share after individual domestic stocks at 37.4 percent.

The valuation of domestically listed overseas index ETFs rose about twofold to 23.8 trillion won at end-June from 12.18 trillion won at end-2024. Investment in overseas index ETFs across all ISAs, including trust-type and discretionary accounts, totalled 24.9 trillion won, or 26.5 percent of total assets.

ISAs cannot directly buy overseas-listed stocks or overseas-listed ETFs. They can invest in domestically listed ETFs that track overseas indexes such as the Standard & Poor's (S&P) 500 and Nasdaq 100.

That is why investor backlash grew after the government announced both a tightening of operating conditions for existing ISAs and restrictions on investing in overseas index ETFs through the productive finance ISA.

In major countries overseas, tax-saving accounts are being expanded in a way that supports long-term asset building or increases investors' use of the accounts.

Japan overhauled NISA in 2024, making the scheme permanent and switching the tax-exempt holding period to an unlimited term. The annual investment limit is up to 3.6 million yen, combining 1.2 million yen for regular contributions and 2.4 million yen for growth investments, and the tax-exempt holding limit is 18 million yen. If holdings are sold, the tax-exempt limit equivalent to the purchase price is restored from the following year.

Japan is expanding the scheme further. From 2027, those under 18 will be able to use the regular contribution-type NISA, applying an annual investment limit of 600,000 yen and a tax-exempt holding limit of 6 million yen. It will also add some bond-type investment trusts and new index-tracking products to eligible contribution investments.

The Korea Institute of Finance said cumulative contributions to Japan's NISA reached 71 trillion yen at end-2025, already surpassing the government's 2027 target of 56 trillion yen. The number of accounts also grew to 28.26 million. The institute assessed that making NISA permanent in 2024 and expanding annual investment and tax-exempt limits contributed to the increases in contributions and accounts.

Britain's ISA allows annual contributions of up to 20,000 pounds in the 2026-2027 tax year. It consists of various types, including a cash ISA and a stocks and shares ISA that invests in stocks and funds.

Britain is also adjusting the scheme to draw funds into the domestic capital market, but not by reducing overall benefits. From April 2027, the cash ISA limit for those under 65 will be lowered to 12,000 pounds, while the overall annual ISA limit of 20,000 pounds will be maintained.

In a regular ISA, withdrawing funds early does not forfeit existing tax benefits. In particular, a flexible ISA allows withdrawn funds to be paid back in during the same tax year without additionally using up that year's contribution limit.

Canada's Tax-Free Savings Account (TFSA) offers more flexible use of contribution limits. The newly granted annual limit for 2026 is 7,000 Canadian dollars, and unused contribution limits are carried forward to later years.

Withdrawn amounts also return as contribution room in the following year. Investment income generated in the account and withdrawals are, in principle, tax-free, while separate taxation applies to excess contributions and other cases.

Lee Jae-wan (이재완), a research fellow at Hana Institute of Finance, said, "To support long-term asset building and retirement preparation, institutional improvements are needed to increase the use of tax-saving accounts and to advance investor protection systems." He added, "For expanding participation, encouraging long-term investment and supporting retirement savings accumulation, we should review expanding ISA tax benefits, expanding tax credits for pension accounts, and introducing preferential tax schemes for long-term investment."