Key Takeaways
- • The Korean government announced on the 29th an overhaul of the retirement pension system, which holds 553 trillion Korean won in accumulated reserves as of June 2026.
- • Starting in 2028, companies will be gradually required to accumulate severance pay reserves externally, beginning with workplaces of 100 or more employees.
- • Workplaces with 10–99 workers will be phased in from 2029, and those with fewer than 10 employees from 2030.
- • A 'fund-type retirement pension' system, which pools reserves from multiple workplaces for professional management, will be fully introduced.
- • The government aims to prevent severance pay defaults and boost operational returns to strengthen post-retirement income guarantees, and will push the 'Amended Employee Retirement Benefit Security Act' through the National Assembly this year.
Summary
The government announced on the 29th a plan to overhaul Korea's retirement pension system, which has accumulated reserves of 553 trillion Korean won as of June this year, according to the source report published by Chosun Ilbo. The central change is the introduction of a mandatory retirement pension regime. Under the current framework, companies may elect the severance pay system instead of a retirement pension, which means they are not required to set aside reserves externally. The government identifies the resulting risk: if a company runs into financial difficulty, it may be unable to fund severance payments, producing payment defaults.
To address this, the government plans to phase in mandatory external accumulation of severance pay reserves. Workplaces employing 100 or more workers will be covered starting in 2028, followed by workplaces with 10 to 99 workers in 2029, and workplaces with fewer than 10 employees from 2030. The government will finalize the 'Amended Employee Retirement Benefit Security Act' shortly and seek its passage in the National Assembly within the year.
The plan also changes how the reserves are managed. Retirement pensions have largely been 'contract-type' arrangements, in which each company contracts with a financial institution to manage its funds individually. The government will fully introduce a 'fund-type retirement pension' system, in which reserves from multiple workplaces are pooled and jointly managed by professional institutions. At present, the only fund-type option is the Small and Medium Enterprise Retirement Pension, which is limited to workplaces with fewer than 50 employees. The government states that the combined measures are intended to prevent severance pay defaults and raise operational returns, thereby enhancing the system's role in guaranteeing retirement income.
The article does not provide detail on expected asset allocation, fund manager selection criteria, or the projected size of reserves that will shift to external management.
To address this, the government plans to phase in mandatory external accumulation of severance pay reserves. Workplaces employing 100 or more workers will be covered starting in 2028, followed by workplaces with 10 to 99 workers in 2029, and workplaces with fewer than 10 employees from 2030. The government will finalize the 'Amended Employee Retirement Benefit Security Act' shortly and seek its passage in the National Assembly within the year.
The plan also changes how the reserves are managed. Retirement pensions have largely been 'contract-type' arrangements, in which each company contracts with a financial institution to manage its funds individually. The government will fully introduce a 'fund-type retirement pension' system, in which reserves from multiple workplaces are pooled and jointly managed by professional institutions. At present, the only fund-type option is the Small and Medium Enterprise Retirement Pension, which is limited to workplaces with fewer than 50 employees. The government states that the combined measures are intended to prevent severance pay defaults and raise operational returns, thereby enhancing the system's role in guaranteeing retirement income.
The article does not provide detail on expected asset allocation, fund manager selection criteria, or the projected size of reserves that will shift to external management.
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