Understanding Korea’s Retirement Pension System: A Guide for Foreign-Invested Companies

As Korea continues to attract foreign investment, many international companies operating locally face unfamiliar regulatory landscapes — especially when it comes to employee benefits. One area that often raises questions is Korea’s retirement pension system. Whether you're setting up operations or expanding your team, understanding this system is essential for compliance and long-term workforce planning.

 

What Is the Retirement Pension System?

Korea’s retirement pension system is a legally mandated framework designed to ensure financial security for employees after retirement. It replaces the older severance pay system and encourages long-term savings through structured pension plans.

There are three main types:

Most foreign-invested SMEs enroll in the DC plan due to its flexibility and lower long-term liabilities.

Legal Requirements

  • Mandatory Coverage: All companies with five or more employees must adopt a retirement pension plan.
  • Contribution Rate: Minimum 1/12 of the employee’s annual wage must be contributed annually.
  • Vesting Period: Employees become eligible after one year of continuous service.

  

What Foreign Companies Should Know

Foreign employers often ask: Does this apply to expatriate staff? Yes—if the employee is under a Korean employment contract, the retirement pension obligation applies regardless of nationality.

However, a special exemption may apply if the employee is continuously covered by the pension system of the home country.

 

Strategic Considerations

  • Outsourcing Support: Many foreign firms partner with local accounting providers like ABK to manage pension compliance, reporting, and employee onboarding.
  • Tax Efficiency: Contributions are tax-deductible for employers, and employees benefit from deferred taxation on returns.
  • Employee Retention: Offering a well-managed pension plan can enhance your value proposition to local talent.

 

Retirement Pension Providers (2025)

Note: Banks primarily offer principal-guaranteed products for stability, but performance-based products are gradually expanding.

 

Frequently Asked Questions for Foreign Employees

 

How ABK Can Help

Navigating pension setup, contribution schedules, and regulatory filings can be complex. ABK acts as your outsourced accounting department, ensuring full compliance while optimizing your internal resources. From plan selection to monthly reporting, we provide end-to-end support tailored to foreign-invested enterprises.

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Sources

  • KB Kookmin Bank, Hana Bank, Shinhan Bank, IBK Industrial Bank of Korea IRP product disclosures (2025)

 

Contract:

Ahreum-Kim – info@abk-korea.com

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