Korea to Transform Retirement Pension System into Public Fund

The Ministry of Employment and Labor in South Korea is set to implement a five-phase plan to convert the retirement pension system, which currently holds approximately 430 trillion won, into a public pension system similar to the National Pension Service (국민연금). Once this transition is complete, retirement benefits will only be available as pensions rather than lump-sum payments. Additionally, the government plans to amend the law to allow employees to receive retirement benefits after just three months of work, instead of the current requirement of one year.

According to reports from the Ministry, the retirement pension fund surpassed 431 trillion won at the end of last year and is projected to exceed the size of the National Pension by 2050. The government believes that this change will enhance retirement security for all workers.

To facilitate this transition, a new Retirement Pension Corporation (퇴직연금공단) will be established, and tax incentives will be introduced to prevent early withdrawals. However, the government is aware that mandating retirement pensions for small and micro businesses could strain their finances, so they are considering a phased implementation based on company size, starting with large enterprises that have over 300 employees.

The current retirement benefit system includes both lump-sum payments and pension-style payments. By making retirement pensions mandatory, the government aims to eliminate the lump-sum system and unify it under the pension model, which is expected to help reduce income disparities in retirement and address issues of elderly poverty.

While the introduction of mandatory retirement pensions is anticipated to increase costs for businesses, especially smaller ones, the government is also exploring ways to support these companies. For instance, if companies with fewer than 30 employees voluntarily adopt the system early, they could receive a 10% subsidy from the government for three years.

The Ministry is also considering allowing investments in venture capital for retirement pensions, which were previously restricted. This change could potentially increase the returns on retirement pensions and support the growth of venture businesses. The government plans to revise the Retirement Pension Guarantee Act by 2027 to facilitate these changes.

Furthermore, the Ministry has reported plans to allow employees to receive retirement benefits after just three months of employment, which could lead to a significant increase in costs for businesses. Critics argue that this could encourage a trend of short-term employment, undermining the original purpose of the retirement benefit system, which is to reward long-term service. The Ministry acknowledges that the legal implications and financial burdens on small businesses will need to be addressed through social dialogue and consensus.