Finance ministry sets out phased duty to fund retirement benefits

South Korea's finance ministry said it will make it mandatory for all workplaces to hold retirement benefits outside the company in a three-stage rollout from 2028, as part of a labor-business-government agreement to strengthen retirement pensions.

The measure was announced jointly by the finance ministry and other relevant ministries as a follow-up to a Feb. 6 tripartite declaration.

The obligation would be phased in after a one-year preparation period if a revision to the Guarantee of Workers' Retirement Benefits Act passes the National Assembly this year. Workplaces with 100 or more employees would be covered from 2028, those with 10 to 99 employees from 2029, and those with fewer than 10 from 2030.

The government cited the scale of unpaid severance as the reason for the change. Retirement pay accounted for 41.1 percent of unpaid wages in 2025, or 823 billion won ($616 million), and the ministry said compulsory external funding is the most effective way to reduce that risk.

The government has set aside 6 billion won ($4.49 million) in matching support for employers that adopt the system voluntarily and 6.2 billion won ($4.64 million) to cover the cost of business loans in its 2027 budget proposal.

A second strand of the plan aims to keep retirement savings invested longer. Workers would be given automatic pension payments unless they state a preference for a lump sum, and the government would require providers to supply comparisons of expected payouts. Rules would also be eased to allow secured loans against retirement accounts, giving workers an alternative to early withdrawal.

"The plan to strengthen retirement pensions is the product of a social agreement reached by labor, business and government working together, and it establishes an institutional foundation to safeguard workers' later years by balancing the stability and the profitability of retirement income," Employment and Labor Minister Kim Young-hoon said.

A new type of fund-based pension would also be introduced. In this model a licensed trustee, rather than the worker, manages the money, with gains and losses attributed to the subscriber. Trusteeship is split into three categories by the type of entity that establishes the trustee: financial institutions, cooperative bodies and public institutions such as the Small and Medium Enterprise Retirement Pension Fund.

Trustees would need approval from the employment and labor minister after review by a licensing committee and would be subject to minimum capital requirements. The law would require trustees to put subscribers' interests first, and the burden of proof on core duties such as management and conflicts of interest would shift to the trustee.

The Small and Medium Enterprise Retirement Pension Fund would be opened to workplaces with up to 300 employees from January 2028, and workplaces that still do not adopt a pension after the mandate takes effect would be enrolled automatically, with the option to opt out within a set period.

The ceiling on risky assets in individual retirement pension accounts would be raised gradually from the current 70 percent, and comprehensive investment accounts and promissory notes would be added to the products available to defined-contribution and individual accounts.

The government plans to draft the legislative revision in November and push for passage at a plenary session of the National Assembly within the year. "We will devote all efforts to advancing the legislation so the revised bill can pass the December plenary session, and will build a support system on the ground without gaps to match the mandatory schedule," Kim said.