Apart from South Korea’s National Pension System (NPS), companies of all sizes, including foreign employers with employees in South Korea, will soon be required to also contribute to a compulsory corporate pension scheme. The effective date will likely be during the second half of 2019 or the beginning of 2020.
“The exact effective date is not yet confirmed due to sudden shifts in the South Korean government,” says Heon Joo, CEO of EB Incorporation. “We do believe the Corporate Pension scheme will become compulsory in late 2019 or early 2020. At this point, if a company plans to enter the South Korean market, or hasn’t implemented a corporate pension, we recommend getting some consultation on a corporate pension very soon.”
Mr. Joo adds that corporate pension schemes currently are sold in three financial areas: banks, insurance companies, and securities firms. He also notes that there are around 153 providers in this financial area so it is wise to use a local expert to help choose the right policy for your employees.
Background on South Korea’s National Pension System
South Korean employees covet retirement benefits above all others. Since the 1960s South Korea’s private employers have typically provided a severance pay system for their employees that acts as a pension payment. However, in1988 the NPS was formed as a government-sponsored severance pay, or pension, system.
There are five compulsory social security systems in Korea and it is a mandatory insurance managed by the government’s NPS. This compulsory insurance consists of national pension, health, unemployment, industrial accident compensation, and long-term care for senior citizens.
Since 2005, employers of all sizes (including employers with less than five employees) have been contributing 4.5% of their employee’s gross monthly payroll to the NPS. Each employee also contributes 4.5% of their salary to the NPS, with the total contribution rate being 9%. For 2019 the minimum earnings used to calculate contributions are 300,000 won. The maximum is 4,680,000 won.
Background on South Korea’s Compulsory Corporate Pension
Like many other countries in the world, South Korea is facing a rapidly aging population and in 2011 took measures to ensure its social programs remain sustainable by passing the Employee Retirement Benefit Security Act (ERBSA). This legislation took effect in 2012, and certain employers who did not introduce supplemental corporate pension schemes paid penalties.
Apart from the National Pension System, corporate pensions will become compulsory beginning mid- 2019 or in 2020. As mentioned in the opening of this article, this change is applicable not only for Korean companies but also for foreign companies with employees working in South Korea.
Getting assistance with South Korean benefits
There are many other facets to consider when setting up and administering retirement benefits in South Korea. If you would like assistance with this, please contact us and we will put you in touch with our South Korean Partner, EB Incorporation, who is a local expert in these benefits.