Government Mandates External Retirement Fund Accumulation to Prevent Unpaid Benefits

The government announced on the 29th an overhaul of the retirement pension system, whose accumulated reserves reached 553 trillion Korean won as of June 2026, according to the original Chosun Ilbo report. The central measure is "mandatory retirement pension enrollment," under which companies would be required to accumulate retirement benefit funds externally, such as through financial institutions. Under the current framework, companies may instead opt for a lump-sum severance pay system, which exempts them from external accumulation and has led to unpaid benefits when firms face financial difficulties. The mandate will be phased in beginning in 2028, and the government plans to finalize amendments to the Employee Retirement Benefit Security Act and seek parliamentary passage within the year.

The reform also restructures how pension assets are managed. Under the existing contract-type system, individual companies contract with financial institutions to manage their pensions. A new fund-type retirement pension will pool reserves from multiple workplaces for collective management by professional institutions. Today, only small businesses with fewer than 50 employees can join the Small and Medium Enterprise Retirement Pension, the sole existing fund-type product. The government cites low returns as the motivation: 6.47% annually in 2025, compared with 18.82% at the National Pension Service. Potential trustees could include financial companies, multi-company entities, nationwide labor-management organizations, or public institutions. Whether the National Pension Service may participate will be decided by the National Assembly.

Payout practices are also expected to change. In 2025, 83.5% of retirement benefit accounts were withdrawn as lump sums. The government is considering a default in which benefits are paid as pensions unless employees explicitly elect a lump sum.