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Retirement benefit scheme and retirement pension plan in Korea
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Manager
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37
날짜
2019-10-08
첨부파일

[Retirement benefit scheme and retirement pension plan]

                                                         Date: September 30, 2019

 

 

 

I. Introduction

Thisis to provide a picture of Retirement benefit scheme and retirement pensionplan

 

II. Overview

(1). Retirement benefit scheme includes a Defined Benefit plan, a Defined Contribution plan, and a retirement allowance system

1. Scope of application: This Act shall applyto all businesses or workplaces employing workers: Provided that this shall notapply to businesses employing only relatives cohabiting with their employer

2. Establishment, etc. of RetirementAllowance Systems:  Any employer whointends to set up a retirement allowance system shall establish a system thatmakes it possible to pay a retiring worker a prorated amount equivalent toaverage wages earned for 30 days for each year of his/her continuous service.

3. Payment of Retirement Allowances: Whereany worker retires from his/her office, the employer shall pay such worker aretirement allowance within 14 days from the date when a ground for the paymentoccurs: Provided, that the payment date may be delayed under an agreement bythe parties concerned in extraordinary circumstances.

 

(2) Retirement Pension plans

 

Defined Benefit

Defined Contribution

IRP

operator

employer

participants

In case of unemployment or retirement,  an employee deposit lump sum retirement allowance into IRP account for life after retirement

The amount of contributions

An employer shall reserve 90% of the estimated amount of retirement benefits at the end of every business year

The amount of contributions shall be an amount equal to 1/12 of the total annual wages of the participant, for delinquent contributions,  he/she shall be liable to pay interest for arrears  

Individuals shall pay the contributions under the individual retirement plan at his/her own expense

Early withdrawal

Not possible

All the benefits are possible when a ground prescribed by laws occurs

Possible when a ground prescribed by laws occurs

Securing a loan

Up to 50% when a ground prescribed by laws occurs

Up to 50% when a ground prescribed by laws occurs

Up to 50% when a ground prescribed by laws occurs

Payment record submission

obligated

Not obligated

Not obligated

remarks

The amount of retirement benefits is determined in the same way with the existing retirement benefit scheme

Bookkeeping is needed upon payment (retirement allowance/ ordinary deposit)

Similar to interim settlement

In case of reserving lump sum retirement allowance into IRP account, tax deferral benefits are provided

 

 

1. Grounds for early withdrawal and securedloan: housing purchase, need for caring for the participants or dependents ofthe participants more than 6months, security money for lease of homeless people(only once for one’s period of service in a position), force majeure

 

2.  By2012, tax deferral benefits were offered in case of transferring more than 80%of lump sum retirement allowance within 60 days from the last day of work.However, from 2013, a retiree shall 100% of lump sum retirement allowancewithin 60 days from the last day of work for tax deferral benefits.

 

 (3) Whena business operator newly established Defined Benefit Pension Plan pays theretirement allowance derived from the years before joining the plan the methodsof payment differ by rules and regulations of the business operator

 

1. Where the rules and regulations are setto make a retroactive payment of retirement allowance for the period of joiningpoint to the Defined Contribution plan (hereinafter referred to as DC plan): paythe contributions equivalent to 1/12 of the annual wages at the joining pointto the DC plan.

2. Where the rules and regulations are notset to make a retroactive payment of retirement allowance for the period ofjoining point to the DC plan: The retirement allowance for the service periodbefore the joining point shall be paid by calculating the average salary forthe last three months from the last day of service.  

 

(4) Case study for calculating withholdingtax derived from DC plan and additional retirement allowance in the same year

An employee who worked for a company whichestablished DC plan retired on August31, 2019. His company paid thecontributions to the DC plan from his joining date to the end of 2018 butdirectly paid the retirement allowance for the period from Jan 1st2019 to Aug 31st 2019.

 

1. Where the employer established DC planand offers additional retirement allowance to the retiree the person withwithholding tax liability for retirement income is the employer. 

2. Where the employer makes a payment forretirement allowance ahead of the DC pension trustee (financial institution)the employee shall submit PAYE situation a written notice for additionalretirement allowance within the 10 days of following month from the payment andgive an immediate notice of Retirement Income tax withholding receipts to theDC pension trustee (financial institution)

3. Where the DC pension trustee (financialinstitution) makes a payment ahead of the employer the trustee shall give anotice to the employer who shall aggregate the lump sum retirement allowanceand calculate retirement income tax.

 

 

 

Learn more about Korean tax system by visiting our website:

 

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