Korea will gradually require all workplaces to introduce retirement pension plans and plans to roll out a professionally managed pension system aimed at boosting investment returns, under a landmark agreement reached Friday by labor, business and the government.
The accord was announced in a joint declaration by the Tripartite Task Force on Strengthening the Retirement Pension System at a meeting in Seoul. Officials said it marked the first social pact on structural reforms to the retirement pension system since its introduction in 2005, after more than two decades of debate over coverage, funding and returns.
Under the agreement, employers will be required to deposit severance benefits into externally managed retirement pension plans. The mandate will be phased in based on company size and financial capacity, with detailed timelines to be finalized after a government survey of micro and small businesses.
Although retirement pensions became mandatory for newly established firms in 2012, enforcement has remained weak. As of 2024, only 435,000 workplaces — 26.5 percent of all businesses — had adopted the system. Adoption stood at more than 90 percent among companies with 300 or more employees but just over 10 percent at workplaces with fewer than five workers.
Representatives from labor, business and the government agreed that employees’ existing options, including early withdrawals and lump sum payouts, would remain unchanged. Acknowledging that mandatory external funding could impose additional costs on small firms, they said financial and administrative support from the government would be needed to ease the transition. Authorities also pledged to strengthen oversight, streamline plan rules and reduce administrative burdens.
Experts say the push reflects growing concerns about income security in retirement as life expectancy rises. Also, Korea’s national pension system faces a looming crisis as rapid aging and low birthrates shrink the contributor base, leaving the government struggling to prevent elderly poverty without imposing unpopular tax hikes.
“Legally, retirement is set at age 60, but people now live another 20 to 30 years after leaving the workforce,” said Kim Dae-jong, a professor of business administration at Sejong University. “Because the national pension alone cannot provide sufficient income, retirement pensions have become increasingly important.”
Kim said Korea’s retirement pensions have struggled to generate meaningful returns, noting that most plans focus on principal protection rather than long-term growth.
“The average annual return has been only about 2 to 3 percent,” he said. “What matters now is how to raise returns through better investment strategies and genuine consensus among labor, management and the government.”
A second pillar of the agreement is the introduction of professionally managed or fund-based retirement pensions alongside the current contract-based system. Under the fund-based model, a designated trustee pools employer contributions into a collective fund and manages assets centrally to achieve economies of scale and higher returns. Individual workplaces will be allowed to offer both models.
Kim cautioned against excessive government involvement in managing retirement pension funds, drawing parallels with the national pension system.
“If retirement pensions are managed in the same way, the same problems will be repeated,” he said. “The focus should be on improving returns for individual workers rather than government-led fund management.”
The agreement also outlines fiduciary duties for fund trustees, requiring them to manage assets in beneficiaries’ interests and operate under transparent governance and close supervision.
Labor Minister Kim Young-hoon welcomed the deal, calling it “the first social consensus on core issues left unresolved for more than two decades,” and said the government would swiftly prepare follow-up measures and legislative amendments.