🚨 Mandatory Retirement Pension: Strengthening Worker Retirement Security System Reform

Today Korean Social News | 2025.06.26

📌 Government Pushes 'Mandatory Retirement Pension' to Solve Unpaid Retirement Pay…Labor Welcomes, Business Worries

💬 The government is pushing for mandatory retirement pensions to solve unpaid retirement pay problems. The Ministry of Employment and Labor reported to the National Policy Planning Committee a plan to abolish the retirement pay system and unify it with retirement pensions. This plan will be implemented step by step by workplace size, and the establishment of a retirement pension corporation and inclusion of special employment and platform workers are also being considered. Labor groups welcome this, while business groups worry about the burden on small companies.

Summary

• Mandatory retirement pension is a system that requires all workplaces to adopt retirement pensions.
• The main goals are solving unpaid retirement pay problems and providing stable retirement security for workers.
• Systematic management will be carried out through step-by-step implementation and establishment of a retirement pension corporation.

1️⃣ Definition

Mandatory retirement pension means a policy that requires all workplaces to adopt retirement pension systems, which are currently optional. The key is to gradually abolish the existing retirement pay system and completely unify it with retirement pensions.

This system requires monthly contributions to retirement benefits that workers receive when they retire, managed by professional institutions, to eliminate the risk of unpaid retirement pay and provide more stable retirement security.

💡 Why is this important?

• It can fundamentally solve unpaid retirement pay problems.
• Professional asset management can increase retirement benefit returns.
• Pension benefits continue even when workers change jobs.
• National retirement security systems are strengthened.

2️⃣ Main Contents of Mandatory Retirement Pension

📕 Background and Necessity

• Unpaid retirement pay problems are at a serious level. The main situation is as follows:

  • As of 2023, unpaid retirement pay amounts to about 400 billion won.
  • Unpaid wages are concentrated in small businesses and small business workplaces.
  • More workers cannot receive retirement pay when businesses close or go bankrupt.
  • The current retirement pay system puts a burden on employers to pay large amounts at once.

• There are limits to the current retirement pension system. The main problems are as follows:

  • The retirement pension adoption rate remains at about 60% of all workplaces.
  • Small workplaces with fewer than 5 employees have very low retirement pension adoption rates of less than 20%.
  • The mix of retirement pay and retirement pensions makes system operation complex.
  • Workers have low understanding of the system, making active management difficult.

📕 Implementation Plan for Mandatory System

• Stable introduction will be implemented step by step. The main implementation stages are as follows:

  • Stage 1: Large companies and public institutions are applied first.
  • Stage 2: Expand to mid-sized companies and small businesses with 100 or more employees.
  • Stage 3: Expand to workplaces with 30 or more employees.
  • Stage 4: Finally apply to all workplaces.
  • Sufficient preparation time and support measures are prepared for each stage.

• Establishment of a retirement pension corporation is being considered. The main roles are as follows:

  • Take charge of retirement pension operations for small workplaces.
  • Provide standardized products and services at low fees.
  • Systematically support worker education and consulting services.
  • Ensure transparency and professionalism in system operation.
  • Provide integrated retirement security services in connection with the National Pension Service.

📕 Including Special Employment and Platform Workers

• Workers in new employment types are also included. The main targets are as follows:

  • Special employment workers such as delivery drivers, designated drivers, and courier workers are included.
  • Retirement security plans for platform economy workers are prepared.
  • Separate systems for freelancers and independent contractors are being considered.
  • Support measures considering fairness with existing workers are being discussed.

• Inclusion plans are being specifically considered. The main contents are as follows:

  • Methods where platform companies and workers contribute jointly are being considered.
  • Differential application plans according to income level and work type are being discussed.
  • Connection plans with existing social insurance systems are being sought.
  • Full-scale introduction is planned after verifying effectiveness through pilot projects.

Major Issues of Mandatory Retirement Pension

1. Small Business Burden: Increased cost burden from introducing and operating retirement pensions
2. Fee Problems: Concerns about worker return rate decline due to financial company fees
3. Investment Risk: Possibility of principal loss according to market conditions
4. Implementation Timing: Concerns about field confusion due to sudden introduction
5. Management System: Need to prepare effective supervision and management plans

3️⃣ Expected Effects and Overseas Cases

✅ Expected Positive Effects

• Various benefits are expected for workers. The main effects are as follows:

  • The risk of unpaid retirement pay completely disappears, enabling stable retirement security.
  • Higher returns than existing retirement pay can be expected through professional asset management.
  • Continuous benefits can be received through Individual Retirement Pension (IRP) even when changing jobs.
  • The actual amount of retirement benefits can increase through tax benefits.
  • Workers' choices to decide their own investment direction are expanded.

• Positive effects are also expected for employers and the national economy. The main improvements are as follows:

  • Employers' burden of lump-sum retirement pay payments is greatly reduced.
  • Labor-management disputes related to retirement benefits are expected to decrease significantly.
  • Long-term investment funds are expanded, contributing to capital market development.
  • National retirement security systems become more solid.
  • Growth effects in the financial industry and job creation are also expected.

✅ Major Overseas Cases

• Advanced countries have already completed mandatory implementation. The main cases are as follows:

  • The United States has widespread defined contribution retirement pensions like 401(k).
  • The UK has mandated retirement pension enrollment for all employers since 2012.
  • Australia has implemented mandatory retirement pension systems (Superannuation) since 1992.
  • Germany has built multi-layer pension systems including Riester and Rürup pensions.

• There are lessons to be learned from overseas cases. The main lessons are as follows:

  • Step-by-step introduction and sufficient preparation time are key to success.
  • Low fees and transparent operation are important for system establishment.
  • Worker education and information provision must be actively carried out.
  • Continuous government support and supervision are needed.
  • Harmonious connection with existing social security systems is important.

4️⃣ Related Term Explanations

🔎 Retirement Pay

• Retirement pay is a lump sum that workers receive when they retire.
• Retirement pay is a large sum that workers receive when leaving a company, which is legal retirement benefits paid to workers who have worked for more than one year. The principle is to pay 30 days' average wages per year of service.
• The main characteristics of retirement pay are: first, employers pay it as a lump sum at retirement. Second, there is no separate accumulation obligation, so employers pay with their own funds. Third, there is a risk of unpaid wages when businesses close or go bankrupt. Fourth, partial receipt is possible during employment through interim settlement.
• The retirement pay system has been implemented since 1953 and has been the basic retirement security means for Korean workers for 70 years, but conversion to retirement pensions is being promoted due to limitations such as unpaid problems and low returns.

🔎 Defined Contribution (DC)

• Defined contribution is a retirement pension that accumulates and operates a fixed amount monthly.
• Defined Contribution (DC) is a retirement pension system where employers accumulate fixed contributions monthly for each worker, and workers directly choose operation methods to manage the accumulated funds.
• The main characteristics of DC type are: first, workers bear investment risks and benefit amounts are determined according to operation performance. Second, workers can directly choose investment products and proportions. Third, accumulated funds and operation profits are clearly separated by individual. Fourth, transfer to Individual Retirement Pension (IRP) is possible when changing jobs.
• DC type guarantees workers' investment choice rights but has the disadvantage that workers must bear market risks. In Korea, DC type has established itself as the main form of retirement pension and is expected to play a central role even when made mandatory.

🔎 Defined Benefit (DB)

• Defined benefit is a retirement pension where the benefit amount to be received at retirement is predetermined.
• Defined Benefit (DB) is a retirement pension system that promises the level of benefits workers will receive when they retire in advance, and employers bear the accumulated funds necessary to pay this.
• The main characteristics of DB type are: first, benefit levels are predetermined according to years of service and average wages. Second, employers bear investment risks and operation responsibilities. Third, employers must bear additional costs if accumulated funds are insufficient. Fourth, stable retirement income is guaranteed to workers.
• DB type provides predictable retirement benefits to workers, but employers' burden can be large, making introduction difficult for small businesses. Recently, hybrid systems combining DC and DB types are also emerging.

5️⃣ Frequently Asked Questions (FAQ)

Q: What happens to existing retirement pay when retirement pensions become mandatory?

A: When mandatory retirement pensions are implemented, the existing retirement pay system will be gradually abolished. However, already accrued retirement pay rights are protected. Specifically, retirement pay for the period worked before mandatory implementation is recognized as is, and this can be transferred to retirement pensions or managed separately. From the working period after implementation, only retirement pensions will be accumulated. For example, if mandatory implementation occurs at a workplace where someone has worked for 10 years, retirement pay for the previous 10 years is calculated in the existing way, and from then on, it is accumulated as retirement pension. The government is carefully designing the system so that workers are not disadvantaged during this transition process and plans to minimize confusion through sufficient advance notice and education. Also, methods for workers to voluntarily transfer existing retirement pay to retirement pensions if they want are being considered.

Q: Won't the fee burden increase due to mandatory retirement pensions?

A: Fee burden is an important consideration in the mandatory retirement pension process. Current retirement pension fees are at the level of 0.5~1.5% annually, which can be a factor that reduces workers' actual returns. The government is considering several measures to solve this problem. First, it plans to provide low-fee products through the establishment of a retirement pension corporation. Standard products provided by the corporation can significantly lower fees as they are not for profit. Second, fee reduction effects through large-scale group contracts can be expected. Third, fee disclosure obligations will be strengthened to increase transparency and promote competition. Fourth, it plans to expand choices by increasing the proportion of low-cost products such as index funds and ETFs. Looking at overseas cases, the UK introduced fee caps during mandatory implementation, limiting them to 0.75% annually. Korea is also expected to design the system to minimize worker burden by referring to such overseas cases.