Contents
Background to the Retirement Pension Reform Announcement
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The government announced a retirement pension reform plan that includes introducing fund-based retirement pensions and making external funding of retirement benefits mandatoryas its main provisions.
The “Plan to Strengthen the Role of Retirement Pensions,” announced jointly by relevant ministries on October 29, 2026, aims to protect retirement benefits more safely and improve long-term investment returns.
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However, as of October 30, 2026, this is a government reform plan that requires amendments to laws and the preparation of detailed regulations. Its implementation has not yet been finalized, so details and timelines may change.
Mandatory external funding of retirement benefits does not mean that everyone must join a fund-based plan. The requirement concerning a workplace’s funding method should be distinguished from the expansion of fund-based options.
Schedule for Mandatory Retirement Pension Funding
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The first pillar of the reform plan is to require companies to fund employees’ retirement benefits with external financial institutions instead of keeping them within the company.
The aim is to reduce the risk of retirement benefits not being paid on time if a company faces financial difficulties or goes bankrupt.
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On the premise that legislation will be amended within the year, the government proposed the following phased schedule for expanding the external funding requirement.
|
Implementation timing |
Workplaces subject to mandatory external funding |
|
2028 |
Workplaces with 100 or more employees |
|
2029 |
Workplaces with 10–99 employees |
|
2030 |
Workplaces with fewer than 10 employees |
The mandatory external funding requirement at each stage would apply only to periods of continuous employment that begin after implementation. It does not mean that the entire period of past service would be covered retroactively.
The external funding requirement is also a policy about funding retirement benefits outside the company. It does not mean every workplace must join a fund-based retirement pension plan.
Structure of Fund-Based Retirement Pensions
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In the existing contract-based model, participants choose investment products themselves; in the fund-based model, a professional trustee corporation pools and invests the contributions.
A new option available for defined contribution (DC) plans and individual retirement pensions (IRPs), which could operate alongside the existing contract-based model.
The government proposed three types of fund-based arrangements.
|
Type |
Main features |
|
Open financial institution model |
Operated by a financial company alone or by a consortium |
|
Consortium model |
Multiple companies or labor-management organizations establish a nonprofit corporation |
|
Open public institution model |
Operated by a public institution for small and medium-sized businesses, among others |
The reform plan calls for trustee corporations to have a duty to put participants’ interests first and liability for damages, disclose investment performance and costs, and set aside an operating risk reserve.
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However, investment gains and losses accrue to participants.The operating risk reserve does not cover all investment losses. A fund-based plan does not guarantee the principal or a certain level of return.
Plans to Expand Pureun Seed
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Fund-based retirement pensions are not being introduced for the first time through this reform.
The Korea Workers’ Compensation and Welfare Service currently operates “Pureun Seed,” the Small Business Retirement Pension Fund System, which is available to workplaces with 30 or fewer employees.
The government is pursuing a plan to expand eligibility to workplaces with 300 or fewer employees starting January 2028.
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The plan also proposes including workplaces that have not introduced retirement pensions in automatic enrollment after mandatory external funding takes effect, while allowing them to opt out within a specified period.
This provision is also not yet established law. Automatic enrollment should not be understood to mean that all workers will be forced to switch to a fund-based plan.
Changes and Outlook for IRP Returns
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To understand the reform, it helps first to distinguish how DB plans, DC plans and IRPs are managed and how their benefits are structured.
|
Type |
Manager and features |
2025 annual return |
|
DB plan |
The company manages it; retirement benefits are determined in advance |
3.53% |
|
DC plan |
Company contributions are fixed; the participant manages the investments |
8.47% |
|
IRP |
A retirement pension account managed by an individual |
9.44% |
At the end of 2025, the total assets accumulated in domestic retirement pensions amounted to 501.4 trillion won.
However, the retirement pension system’s average annual return over the past 10 years was just 2.64%.
The one-year returns by plan type for 2025 in the table and the 10-year average for the overall system cover different periods. Since the periods differ, be careful not to compare them directly to judge long-term performance.
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The government also proposed gradually easing the 70% limit on investment in risky assets that applies to contract-based IRPs.
However, the extent and timing of any easing have not been finalized. The announcement did not say that the same 70% limit would be eased for DC plans.
Increasing the share of risky assets may bring greater opportunities for returns as well as a higher risk of losing principal. Past returns do not guarantee future performance, and actual results may vary depending on investment mix and timing.
Key Points of the Retirement Pension Reform
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The direction of the reform plan can be summarized as safe external funding of retirement benefits, professional fund management, and expanded investment choices for participants.
It is not a plan to force existing IRPs to transfer to a fund-based arrangement or to merge them with the National Pension.
When comparing contract-based and fund-based plans going forward, it is important to consider fees, risk levels and investment strategies as well as returns, and choose the option that suits you.
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Introducing a fund-based model will not automatically increase returns. A trustee’s expertise, prevention of conflicts of interest, cost management and transparent disclosures will be key factors affecting actual investment performance.
For now, it is important to check the specific details of whether the law will be amended, the implementation schedule, and how IRP investment rules will change.
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Frequently Asked Questions (FAQ)
Q. Does mandatory external funding of retirement pensions mean all workers must join a fund-based plan?
No. Mandatory external funding and joining a fund-based plan are separate matters.
External funding means that companies must set aside retirement benefits outside the company rather than keeping them internally. A fund-based plan is managed by a professional trustee corporation; the reform plan proposes expanding it as an option.
Q. Will all workplaces have to fund retirement benefits externally starting in 2028?
The proposed schedule is a phased expansion based on workplace size.
The government plan proposes expanding the requirement in this order: workplaces with 100 or more employees in 2028, those with 10–99 employees in 2029, and those with fewer than 10 employees in 2030. Since legislation must be amended, implementation and the specific schedule should be checked separately from an established system.
Q. Are principal or returns guaranteed with a fund-based retirement pension?
No. Investment gains and losses accrue to participants, and returns are not guaranteed.
The operating risk reserve does not cover all investment losses. When comparing fund-based plans, it is advisable to consider fees, investment strategy, risk level and disclosures as well as performance.
Q. Will the 70% limit on IRP investment in risky assets change immediately?
The specific easing rate and implementation date have not been announced.
The government plan calls for gradually easing the limit on investment in risky assets for contract-based IRPs, but the details have not been finalized. A higher investment share may also increase the possibility of losses, so check both whether the rules change and your own risk tolerance.
Q. Will existing IRPs automatically transfer to a fund-based plan or be merged with the National Pension?
The proposed reform does not include forced transfer of existing IRPs to fund-based plans or a merger with the National Pension.
A fund-based plan is described as a new investment option to consider for DC plans and IRPs. The actual selection method and scope of application should be confirmed in light of future legislative amendments and detailed regulations.
