Key Takeaways
- • South Korea will phase in mandatory external funding of retirement benefits, starting with workplaces of 100 or more regular employees in 2028, extending to 10-99 employees in 2029, and all remaining workplaces (fewer than 10) in 2030, according to the party-government plan finalized on the 29th.
- • The plan fully introduces fund-type retirement pensions in which specialized trustee companies manage reserves, aimed at closing a return gap: the National Pension Fund returned 18.82% last year versus 6.47% for overall retirement pension assets, which have surpassed 500 trillion won (approximately $374.0 billion).
- • Trustee companies face stricter regulation, including a duty to put members' interests first, a burden-of-proof shift to trustees in core areas, operating risk reserves equal to 0.25% of assets, and a minimum capital requirement of 12 billion won (approximately $9.0 million) for open financial-institution models.
- • Benefits will default to annuities unless workers opt for lump sums, and the IRP risky-asset cap of 70% will be gradually eased; the secured loan limit is proposed to rise from 50% to 70%.
- • Whether the National Pension Service participates was left to the National Assembly, and the 2028 timeline depends on the Employee Retirement Benefit Security Act amendment being passed within the year.
Summary
South Korea's government and the Democratic Party of Korea finalized a "retirement pension enhancement plan" that will require employers to set aside retirement benefits at external financial institutions rather than on company books. According to supplemental coverage of the plan, the measure will first apply in 2028 to workplaces with 100 or more regular employees, expand in 2029 to those with 10 to 99 employees, and reach workplaces with fewer than 10 employees in 2030. The mandate applies only to service periods after each phase's effective date, so past service need not be retroactively funded. The plan follows a tripartite labor-management-government declaration in February.
The policy is rooted in chronic nonpayment of severance. Severance pay accounted for 822.9 billion won (approximately $615.6 million), or 41.1%, of unpaid wages last year, according to the reporting. Defined-benefit plans funded at 95% or less of the minimum reserve must fill at least 33% of the shortfall within a year or face fines of up to 10 million won (approximately $7,500). Support measures for small businesses include minimum-level fees for workplaces with fewer than 30 employees, a 10% contribution subsidy for lower-income workers, and a 2-percentage-point interest subsidy on management loans for workplaces with fewer than 50 employees that newly join; the related budget for next year is 6.2 billion won (approximately $4.6 million).
At the management stage, a fund-type system will be introduced for defined-contribution and individual retirement pension members, with trustee companies divided into open financial-institution, association, and open public-institution models. The rationale cited is the return gap: last year the National Pension Fund returned 18.82%, the Government Employees Pension Service 17.2%, and the Korean Teachers' Credit Union pension 18.9%, while overall retirement pension returns reached 6.47%. Excluding principal-guaranteed products, performance-based retirement pension products returned 16.80%. Regulation of trustees will tighten, with a fiduciary-style duty, shifted burden of proof in key areas, and outside custody and net asset value verification.
On payouts, benefits will automatically be paid as annuities unless workers elect a lump sum; 83.5% of accounts took lump sums last year. The secured loan limit is expected to rise from 50% to 70%, and the IRP risky-asset cap will be raised gradually from 70%. Participation by the National Pension Service remains unresolved and has been referred to the National Assembly. Minister of Employment and Labor Kim Young-hoon said the government will build an on-site support system to match the mandatory schedule. The government plans to draft an amendment to the Employee Retirement Benefit Security Act in November and seek passage within the year; failure to pass it would delay the 2028 start. Industry participants have voiced both optimism about market expansion and skepticism that changing managers will automatically improve performance, while noting that the source reporting for this item was limited to headlines and supplemental coverage.
The policy is rooted in chronic nonpayment of severance. Severance pay accounted for 822.9 billion won (approximately $615.6 million), or 41.1%, of unpaid wages last year, according to the reporting. Defined-benefit plans funded at 95% or less of the minimum reserve must fill at least 33% of the shortfall within a year or face fines of up to 10 million won (approximately $7,500). Support measures for small businesses include minimum-level fees for workplaces with fewer than 30 employees, a 10% contribution subsidy for lower-income workers, and a 2-percentage-point interest subsidy on management loans for workplaces with fewer than 50 employees that newly join; the related budget for next year is 6.2 billion won (approximately $4.6 million).
At the management stage, a fund-type system will be introduced for defined-contribution and individual retirement pension members, with trustee companies divided into open financial-institution, association, and open public-institution models. The rationale cited is the return gap: last year the National Pension Fund returned 18.82%, the Government Employees Pension Service 17.2%, and the Korean Teachers' Credit Union pension 18.9%, while overall retirement pension returns reached 6.47%. Excluding principal-guaranteed products, performance-based retirement pension products returned 16.80%. Regulation of trustees will tighten, with a fiduciary-style duty, shifted burden of proof in key areas, and outside custody and net asset value verification.
On payouts, benefits will automatically be paid as annuities unless workers elect a lump sum; 83.5% of accounts took lump sums last year. The secured loan limit is expected to rise from 50% to 70%, and the IRP risky-asset cap will be raised gradually from 70%. Participation by the National Pension Service remains unresolved and has been referred to the National Assembly. Minister of Employment and Labor Kim Young-hoon said the government will build an on-site support system to match the mandatory schedule. The government plans to draft an amendment to the Employee Retirement Benefit Security Act in November and seek passage within the year; failure to pass it would delay the 2028 start. Industry participants have voiced both optimism about market expansion and skepticism that changing managers will automatically improve performance, while noting that the source reporting for this item was limited to headlines and supplemental coverage.
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