The Ministry of Employment and Labor has initiated a major overhaul of the retirement pension system in order to boost investment returns and strengthen its role as a key financial asset for preparing workers' retirement.
On March 21, MOEL officially launched an advisory council comprising 11 experts to develop a roadmap for introducing a fund-type retirement pension model in Korea.
Currently, the majority of Korea’s retirement pension systems operate under a contract-based structure, where individual subscribers sign contracts directly with private financial institutions (retirement pension providers) and make their own investment decisions. As a result, instead of pursuing investment strategies aligned with long-term pension asset growth, funds are heavily concentrated in principal and interest-guaranteed products such as savings and deposits—an issue frequently cited as a key factor behind the persistently low returns of retirement pensions.
In contrast, the fund-type retirement pension model—commonly adopted in developed countries such as Australia and the United States—is managed by fiduciary institutions that possess professional expertise and prioritize the interests of subscribers. The introduction of a fund-type system is expected to enhance investment returns by enabling professional asset allocation and achieving economies of scale. It is also anticipated to bring about meaningful improvements by expanding the range of choices available to subscribers, who have thus far been limited to contract-based options.
Discussions on adopting a fund-type structure are not new. When South Korea first introduced the retirement pension system in 2005, it was launched as a contract-based model following a tripartite agreement among labor, management, and government, which prioritized the urgency of implementation and concerns over initial costs. However, since 2014, fund-type models have been explored as part of broader efforts to vitalize the retirement pension system, and in 2018, the government even proposed legislative amendments to that effect.
This year, the government plans to take a more practical approach—carefully reviewing and addressing the issues raised in previous discussions while increasing the system’s on-the-ground acceptability. The goal is to design a fund-type model tailored to Korea’s circumstances, one that ensures tangible benefits for businesses and workers alike in addition to earning their trust.
To that end, an advisory panel has been formed, comprising academic experts with specialization in economics, business, social welfare, and law, as well as researchers from institutions representing various stakeholder interests. At today’s kick-off meeting, the panel discussed key issues such as: identifying suitable fund-type models and implementation phases based on company size; determining the legal structure and requirements of trustee institutions, including whether for-profit entities should be allowed; and setting procedures for authorization, management, and supervision of the funds. In-depth discussions on these and other matters will continue through June, with plans to draft legislation in the second half of the year, following sufficient consultation with stakeholders including retirement pension providers, labor unions, and management.
Minister Moon-soo Kim stated, "As we mark the 20th anniversary of the retirement pension system, we view this as a turning point toward qualitative advancement. The introduction of a fund-type pension model is a core policy priority for the ministry, and we are committed to making it a success in Korea."