Key Takeaways
- • The South Korean government announced on October 30 that it will require employers to fund retirement benefits externally, with phased implementation by business size: 2028 for firms with 100 or more employees, 2029 for 10 to 99 employees, and 2030 for fewer than 10 employees.
- • Retirement benefits accrued before each tier's effective date will not have to be funded retroactively, so businesses will only set aside funds for service periods after the requirement takes effect.
- • Unpaid severance totaled 822.9 billion won at the end of last year, equal to 41.1% of all unpaid wages, affecting more than 260,000 workers each year.
- • The 2027 budget proposal includes 12.2 billion won in support: 6 billion won in matching contributions for early adopters and 6.2 billion won to cover loan costs for operating funds.
- • A government survey of 1,500 non-adopting businesses found 90.3% had fewer than 10 employees, and 80.1% of those said they could prepare within three years.
Summary
The South Korean government has outlined a plan to require employers to set aside retirement benefits with external financial institutions, a measure intended to prevent unpaid severance when companies face financial distress or bankruptcy. The announcement was made on October 30, according to the government's statement as reported by The Asia Business Daily.
The government said the requirement would not create a new obligation to pay retirement benefits. Instead, it would require employers to fund benefits they are already obligated to pay during employees' service periods, placing the funds outside the company regardless of its financial condition. Officials cited data showing unpaid severance totaled 822.9 billion won at the end of last year, or 41.1% of all unpaid wages, affecting more than 260,000 workers annually.
To address concerns from small and medium-sized enterprises, the government proposed a phased rollout. The mandate would take effect in 2028 for businesses with 100 or more employees, in 2029 for those with 10 to 99 employees, and in 2030 for those with fewer than 10 employees. Benefits accrued for service periods before each effective date would not require retroactive external funding, meaning companies would not need to fund the full accumulated liability at once.
The government cited a survey of 1,500 businesses that had not introduced a retirement pension system. Of these, 90.3% had fewer than 10 employees, and 80.1% of those respondents said they could prepare within three years, which the government said undercut claims that the preparation period was excessively short.
The 2027 budget proposal includes 12.2 billion won in new funding, comprising 6 billion won to match contributions from businesses that adopt the system early and 6.2 billion won to cover loan costs for operating funds. The government also plans to reduce administrative costs for micro and SMEs through special fee provisions and simplified plan-rule filing. It will consult with labor, management and the National Assembly on amendments to the Act on the Guarantee of Employees' Retirement Benefits, and it plans to expand eligibility for the Small and Medium Business Retirement Pension Fund, "Pureun Ssiat," and automatically enroll non-participating businesses once external funding becomes mandatory.
The government said the requirement would not create a new obligation to pay retirement benefits. Instead, it would require employers to fund benefits they are already obligated to pay during employees' service periods, placing the funds outside the company regardless of its financial condition. Officials cited data showing unpaid severance totaled 822.9 billion won at the end of last year, or 41.1% of all unpaid wages, affecting more than 260,000 workers annually.
To address concerns from small and medium-sized enterprises, the government proposed a phased rollout. The mandate would take effect in 2028 for businesses with 100 or more employees, in 2029 for those with 10 to 99 employees, and in 2030 for those with fewer than 10 employees. Benefits accrued for service periods before each effective date would not require retroactive external funding, meaning companies would not need to fund the full accumulated liability at once.
The government cited a survey of 1,500 businesses that had not introduced a retirement pension system. Of these, 90.3% had fewer than 10 employees, and 80.1% of those respondents said they could prepare within three years, which the government said undercut claims that the preparation period was excessively short.
The 2027 budget proposal includes 12.2 billion won in new funding, comprising 6 billion won to match contributions from businesses that adopt the system early and 6.2 billion won to cover loan costs for operating funds. The government also plans to reduce administrative costs for micro and SMEs through special fee provisions and simplified plan-rule filing. It will consult with labor, management and the National Assembly on amendments to the Act on the Guarantee of Employees' Retirement Benefits, and it plans to expand eligibility for the Small and Medium Business Retirement Pension Fund, "Pureun Ssiat," and automatically enroll non-participating businesses once external funding becomes mandatory.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.