The Korean government plans to end lump-sum retirement payouts for workers, and to replace them with annuities, according to a report by Korean daily The Chosunilbo on June 24.
The Ministry of Employment and Labour has proposed a five-phase plan that will require all employers, starting with large corporations and eventually extending to small companies, to transition to a new retirement pension system.
Once fully implemented, workers will no longer receive their retirement pay as a one-time cash payment. Instead, benefits will be paid out as annuities, similar to the structure of the National Pension Service.
The ministry says the transition is designed to offer “stronger financial protections for workers and help alleviate elderly poverty by promoting stable, long-term income streams”.
Korea’s pension support system currently consists of multiple pillars: the National Pension Scheme, which covers public and private sector employees; the private retirement scheme; and the company pension scheme, which currently provides private sector employees with a lump sum payment when they hit retirement age.
The report says 92% of large corporations are already providing pension schemes to their employees, while only 41% of companies with five to 29 employees offer similar schemes. Only around 10% of firms with less than five employees offer employees a company pension.
The government plans to subsidise 10% of employers’ contributions for three years for small businesses with less than five employees if they adopt the new system early.