Key Takeaways
- • South Korea's government and the Democratic Party of Korea finalized a plan requiring retirement benefits to be reserved at external financial institutions rather than on company books, phased in from 2028 for workplaces with 100 or more regular employees, 2029 for 10 to 99, and 2030 for fewer than 10.
- • The measure responds to severance pay accounting for 41.1% of last year's unpaid wages (822.9 billion won, about $615.6 million), and to retirement pension returns of only 6.47% against 17.2% to 18.82% at public pension bodies.
- • Benefits will default to annuities unless workers elect a lump sum, after 83.5% of accounts took lump sums last year.
- • Trustee companies face a duty of loyalty, shifted burden of proof, a 0.25% operating risk reserve requirement, and a 12 billion won minimum capital for open financial-institution trustees.
- • Whether the National Pension Service participates was left to the National Assembly, and the bill is slated for drafting in November with passage targeted within 2026.
Summary
South Korea's government and the Democratic Party of Korea have finalized a "retirement pension enhancement plan" that phases in mandatory external reserving of retirement benefits. According to the source article, the plan starts with workplaces of 100 or more regular employees in 2028, expands to workplaces with 10 to 99 employees in 2029, and covers workplaces with fewer than 10 employees in 2030. Only service periods after each phase's effective date must be reserved; past service need not be funded retroactively.
The plan follows a tripartite labor-management-government declaration in February and was finalized in a party-government consultation involving the National Assembly's Climate, Energy, Environment and Labor Committee and the Ministry of Employment and Labor. The stated rationale is chronic severance nonpayment: severance accounted for 822.9 billion won, or 41.1%, of last year's unpaid wages. The plan also fully introduces fund-type retirement pensions, in which specialized trustee companies invest reserves on members' behalf, with the aim of lifting returns that reached 6.47% last year, compared with 18.82% for the National Pension Fund, 17.2% for the Government Employees Pension Service and 18.9% for the Korean Teachers' Credit Union pension. Excluding principal-guaranteed products, retirement pension performance-based products returned 16.80%.
The plan sets default annuity payouts unless workers opt for a lump sum, and requires comparative information on expected returns before choosing. The secured loan limit is expected to rise from 50% to 70%, and the government is considering a 15% tax credit rate on contributions for young workers. Small businesses would receive support, including minimum-level fees for workplaces with fewer than 30 employees and 10% contribution support for lower-paid workers at workplaces that enroll before the law takes effect. The related budget for next year is 6.2 billion won.
For trustee companies, the plan imposes a duty to put members' interests first, shifts the burden of proof to trustees in core areas, and requires operating risk reserves of 0.25% of assets. Custody and net asset value calculation must be entrusted to outside parties. The open financial-institution model requires minimum capital of 12 billion won, and authorization proceeds in preliminary and final stages under a retirement pension supervisory council. Deregulation of the contract-type market includes gradually raising the 70% cap on risky assets in IRPs, permitting investment in comprehensive investment accounts and issued notes, and shortening default-option notification to two weeks before maturity.
Participation by the National Pension Service remains unresolved and has been referred to the National Assembly. Officials are also considering a separate retirement pension corporation as a longer-term measure. Industry views are mixed: the financial investment industry is hopeful about market expansion but doubts that changing managers will automatically improve performance, and critics note that individual-account structures complicate applying the National Pension Service's asset allocation approach. Choi Jong-jin of Korea Investment & Securities said competition from the fund-type system could be a positive stimulus for the contract-type market. Minister of Employment and Labor Kim Young-hoon pledged an on-site support system matching the mandatory schedule. The 2028 timetable depends on passage within the year, and open questions include licensing responsibilities between financial authorities and the labor ministry, small-business adaptation periods, and the National Pension Service's role.
The plan follows a tripartite labor-management-government declaration in February and was finalized in a party-government consultation involving the National Assembly's Climate, Energy, Environment and Labor Committee and the Ministry of Employment and Labor. The stated rationale is chronic severance nonpayment: severance accounted for 822.9 billion won, or 41.1%, of last year's unpaid wages. The plan also fully introduces fund-type retirement pensions, in which specialized trustee companies invest reserves on members' behalf, with the aim of lifting returns that reached 6.47% last year, compared with 18.82% for the National Pension Fund, 17.2% for the Government Employees Pension Service and 18.9% for the Korean Teachers' Credit Union pension. Excluding principal-guaranteed products, retirement pension performance-based products returned 16.80%.
The plan sets default annuity payouts unless workers opt for a lump sum, and requires comparative information on expected returns before choosing. The secured loan limit is expected to rise from 50% to 70%, and the government is considering a 15% tax credit rate on contributions for young workers. Small businesses would receive support, including minimum-level fees for workplaces with fewer than 30 employees and 10% contribution support for lower-paid workers at workplaces that enroll before the law takes effect. The related budget for next year is 6.2 billion won.
For trustee companies, the plan imposes a duty to put members' interests first, shifts the burden of proof to trustees in core areas, and requires operating risk reserves of 0.25% of assets. Custody and net asset value calculation must be entrusted to outside parties. The open financial-institution model requires minimum capital of 12 billion won, and authorization proceeds in preliminary and final stages under a retirement pension supervisory council. Deregulation of the contract-type market includes gradually raising the 70% cap on risky assets in IRPs, permitting investment in comprehensive investment accounts and issued notes, and shortening default-option notification to two weeks before maturity.
Participation by the National Pension Service remains unresolved and has been referred to the National Assembly. Officials are also considering a separate retirement pension corporation as a longer-term measure. Industry views are mixed: the financial investment industry is hopeful about market expansion but doubts that changing managers will automatically improve performance, and critics note that individual-account structures complicate applying the National Pension Service's asset allocation approach. Choi Jong-jin of Korea Investment & Securities said competition from the fund-type system could be a positive stimulus for the contract-type market. Minister of Employment and Labor Kim Young-hoon pledged an on-site support system matching the mandatory schedule. The 2028 timetable depends on passage within the year, and open questions include licensing responsibilities between financial authorities and the labor ministry, small-business adaptation periods, and the National Pension Service's role.
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