South Korea Pension Guide

National Pension Service (NPS) — 국민연금

• Type — Defined Benefit: The National Pension is a defined benefit (DB) social insurance scheme. The pension benefit is calculated based on the average lifetime income (the 가입자 개인별 평균소득월액) and the number of contribution months. The formula is: 1.2 × (A + B) × (1 + 0.05n/12) where A is the average income of all insured persons, B is the individual's average income, and n is the number of contribution months beyond 20 years.
• Contribution rate — 9%: The employee pays 4.5% and the employer pays 4.5% of the standard monthly income (기준소득월액). The contribution ceiling for 2026 is approximately KRW 5,900,000/month.
• Eligibility: Workers between 18 and 59 years of age who reside in Korea are required to enrol. The insured persons include: the workplace-based insured (사업장가입자), the individually insured (지역가입자), and the voluntarily insured (임의가입자).
• Pension age: The old-age pension (노령연금) is payable from age 62 to 65, depending on the year of birth. For those born after 1960, the pension age is 65.
• Minimum contribution period: At least 10 years (120 months) of contributions are required to qualify for the old-age pension.

For example: a worker with 30 years of contributions and an average lifetime income of KRW 4,000,000/month may receive approximately KRW 1,200,000–1,600,000/month as the old-age pension.

Individual Pension Savings — 개인연금저축 (세액공제)

• Tax-deductible contribution limit — KRW 7,000,000/year: The annual tax deduction (세액공제) for the individual pension savings (연금저축) is up to KRW 7,000,000 per year for 2026. For the total pension savings (including the retirement pension), the combined deduction limit is KRW 9,000,000 per year (연금저축 + 퇴직연금).
• Tax credit rate — 12% to 15%: The contributions receive a tax credit (세액공제) instead of a deduction: 15% for the total income up to KRW 55,000,000 and 12% for the income above KRW 55,000,000.
• Withdrawal tax: When the pension is received after age 55, the pension income is taxed at the pension income tax rate (연금소득세) — generally 3–5% withholding tax, which is lower than the ordinary income tax rate.
• Early withdrawal penalty: If the funds are withdrawn before age 55, a 16.5% penalty tax (including the local income tax) applies on the accumulated tax-deferred amount.

For example: a worker with a total income of KRW 60,000,000 who contributes KRW 7,000,000 to an individual pension savings account receives a tax credit of KRW 840,000 (KRW 7,000,000 × 12%).

Retirement Pension — 퇴직연금

• Type — Mandatory severance scheme: The retirement pension (퇴직연금) is a mandatory scheme under the Employee Retirement Benefit Security Act (근로자퇴직급여 보장법). The employer must set aside at least 8.33% of the annual salary (1/12 of the annual salary) as the retirement benefit for each employee.
• Types: The defined benefit (DB) type — the employer manages the fund and guarantees the benefit; the defined contribution (DC) type — the employer contributes 8.33% of the salary to the individual account and the employee chooses the investments; and the individual retirement pension (IRP) type — for the accrued retirement benefits and the voluntary additional contributions.
• Tax deduction: The additional voluntary contributions to the retirement pension (DC or IRP) are eligible for the tax deduction within the combined limit of KRW 9,000,000/year (including the individual pension savings).
• Payout: The retirement pension may be received as a lump sum (퇴직일시금) or as an annuity (연금) after age 55. The lump sum is subject to the severance income tax (퇴직소득세), which is generally lower than the ordinary income tax. The annuity is taxed at the pension income tax rate.

For example: an employee with an annual salary of KRW 48,000,000 has an employer contribution of KRW 4,000,000/year (KRW 48,000,000 × 8.33%) to the retirement pension account.

Private Pensions — 연금보험 / 연금저축

• Types: The private pension plans include: the pension insurance (연금보험) offered by the insurance companies; the pension savings (연금저축) offered by the banks and the asset management companies; and the pension trust (연금신탁) offered by the banks.
• Tax treatment: The contributions to the pension savings products are tax-deductible (세액공제) up to the annual limit. The investment income within the account is tax-deferred. The pension payouts after age 55 are taxed at the pension income tax rate.
• Comparison: The pension insurance (연금보험) offers a guaranteed principal and a fixed interest rate, while the pension savings (연금저축) may be invested in the mutual funds and the ETFs for a potentially higher return. The pension savings also qualify for the tax credit, while the pension insurance does NOT qualify for the tax credit unless it is the tax-advantaged type.

For example: an investor who contributes KRW 3,000,000/year to a pension savings account and KRW 4,000,000/year to an IRP receives the tax credit on the total KRW 7,000,000 (up to the KRW 9,000,000 combined limit).

FAQs

Can a foreign worker receive the Korean National Pension?

Yes, if the foreign worker has contributed for at least 10 years and reaches the pension age. Alternatively, a foreign worker who leaves Korea before 10 years may apply for a lump-sum refund (일시금) of the employee contributions. The lump-sum refund is available within 60 months of leaving Korea. If Korea has a bilateral social security agreement with the home country, the contribution periods may be combined.

What is the combined pension tax deduction limit for 2026?

The combined annual tax deduction limit for the pension savings (연금저축) and the retirement pension (퇴직연금) is KRW 9,000,000 for 2026. Of this, the individual pension savings (연금저축) alone may account for up to KRW 7,000,000, and the retirement pension (DC/IRP) may account for the remaining KRW 2,000,000 or more.

How is the retirement pension paid when leaving a job?

The accrued retirement benefit may be transferred to an Individual Retirement Pension (IRP) account, withdrawn as a lump sum (subject to the severance income tax), or left in the former employer's DB plan (if the employer allows). The IRP transfer is tax-deferred and the funds may continue to grow tax-free until withdrawal.