Overview of retirement allowance and Pension Fund in Korea

According to the Labor Standards Act and Guarantee of Workers' Retirement Benefits Act, the employer have to accrue the retirement allowances and pay the retirement allowance or contribute the Pension fund in the outside financial institute.

In order to pay retirement benefits to retiring workers, the employer shall choose either the retirement allowance system or the retirement pension plan. In choosing the retirement benefit scheme or changing the chosen retirement benefit scheme to another type, the employer shall obtain the consent of the majority of the labor union if a labor union consisting of the majority of workers exists, or the majority of workers if a labor union does not exist.

Retirement Allowance System

In the event that a worker retires or dies, the employer shall pay a retirement allowance equivalent to the average 30-day wage for each year of his/her continuous service. Upon the request of a worker, the employer may pay retirement allowance for his/her continuous service period prior to his/her retirement. However Korean Government strictly control the early payment of retirement allowance due to the life security of elder people in the future

Retirement Pension Plan

To guarantee workers' financial stability after retirement, the employer shall accumulate and invest funds for the retirement allowance into an external financial institution during the workers' service period. Retirement allowance shall be paid to the workers as a pension or in a lump sum.

Types of retirement pension policies

n  DB: Defined Benefit Retirement Pension

- The retirement benefit is pre-fixed based on the length of service and average wage. The amount of the employer's burden (accumulation) changes according to the investment results of the accumulated funds.

n  DC: Defined Contribution Retirement Pension

- The worker determines the investment method of the accumulated funds, and the amount of retirement pension changes according to the investment results of the accumulated funds. The employer shall pay 1/12 of the worker's wage into the worker's personal account every year.