What Are Pensions and How Do They Work? Part 1 of 3: The Korean National Pension

korean-national-pensionYou don’t need to be old to know about pensions, and how they work in South Korea! Whether you are a young graduate teaching to pay off student loans, an ageless amateur anthropologist fascinated by life in an alien culture, or settled in nicely with a family and a long term residency plan – you’re still losing a chunk of your hard earned income each month to an official pension plan.

The most common of the mandatory schemes here is the National Pension Program, (gukmin yeon-geum/국민 연금 프로그램), which provides coverage for teachers working in hogwons, most public schools and some universities. Foreigners working in other fields also generally pay into this pension scheme. (If you work for a privately funded university or public school you may be enrolled in the ‘Korean Teachers’ Pension Fund’. There are some major differences between the two, so to avoid any surprises it’s best to confirm things with your employer.)

So, apart from noting the effect on your bank balance each month, how much do you really know about the options and benefits available to you through the National Pension?

A little history ….
The National Pension Scheme was set up with the utopian intention of providing a generous retirement income in return for unrealistically low contributions. A nice premise, but as the population ages and the birth rate falls there’s no end of social commentary on the fiscal troubles ahead.

Plans to provide long term contributors with 70% of their income upon retirement have been revised, lopping 10% of the original figure. Additionally, the eligible age for retirement changed this year from 60 to 61. (It will continue to increase by one year every five until 2033, when 65 will become the threshold for you to claim your monthly allowance.

Interesting, but why should I care?
Well if you plan on retiring here in South Korea it’s good to know roughly when that will happen. You may also want to think carefully about the benefits of staying in the official system, versus cashing out and investing the cash yourself. (Presuming you are eligible to do so.)

The nitty gritty: How much money are you required to pay into the scheme?
Pension law doesn’t distinguish between Korean and foreign workers. Anyone who earns over 220,000 won per month is required to pay 4.5% of their salary, (up to the threshold of W3,600,000 per month), into the pension fund: a figure which should be matched by the employer. Bear in mind that some employers may under report your income to reduce their contributory payment, or deduct it but never actually register you at all. Always check your payments are being made – you can call the NPS on 1355 (Korean only) or 02-2176-8703, (ask for an English speaker), to do this.

Wiggle Tip*Tip* A common misconception amongst foreign teachers is that companies with fewer than five workers are exempt from paying into the pension scheme. While this was once the case, the law changed quite a while ago, and now requires that all full time employees who earn enough are registered.

Do all foreigners have to pay into a pension fund?
Actually, no! Those aged over 60 are not required to make contributions, and neither are citizens of Armenia, Bangladesh, Cambodia, Egypt, Ethiopia, Fiji, Iran, The Maldives, Myanmar, Nepal, Pakistan, Saudi Arabia, Singapore, South Africa, Tonga or Vietnam. These nations do not require Korean citizens working there to pay into the national pension plan, so the favour is returned.

What about lump sum refunds: who can get their money back?
If you carry a passport from Canada, the USA, Australia, Germany, the Czech Republic, Belgium, Poland, Slovakia, Bulgaria, Romania, Austria, India, Hungary or France you’re quids in. Sure, you have to fork out the 4.5% a month, but under the ‘totalization agreement’ between your country and South Korea you are eligible to claw back not just your part of the pot, but your employer’s generous donation too. Best of all, the entire amount collects interest! (Now you see why I said it’s good to check you are actually registered?)

As before, it’s a quid pro quo agreement between these countries. As the name suggests, ‘totalization’ also allows those from eligible countries to combine payments from Korea and their home country. This is especially important for those who don’t have enough payments under either scheme to qualify for a full pension. As always there are some conditions attached. To read more about the agreement with each country read the third section, (status) on this page: http://english.nps.or.kr/jsppage/english/agreement/agreement_01_01.jsp#btn02
For a list of the other countries eligible for a refund, with conditions attached, check the official pension site. (http://english.nps.or.kr/jsppage/english/agreement/contract_main.jsp).

Wiggle Tip*Tip* If you are able to apply for a full refund make sure to do so before you reach sixty years of age. After that you will have no choice but to take the monthly payment option. I also recommend that Canadian citizens check out the rules regarding a possible 10 year limit on claiming, before their options narrow.

Isn’t this unfair to the Irish, British and New Zealanders?
It does seem so, especially when friends are walking away with double what they put in, and you get zilch. Sadly for you these countries, (along with the Netherlands, Italy, Mongolia, Uzbekistan, China & Japan), have no inter-government agreement for full refunds. Instead they operate under a ‘contributions only’ rule. The positive point is that you at least avoid paying into mandatory pension schemes in both countries at once.

The urban myths
There are many British people out there who falsely believe that their contributions to the Korean pension scheme will, or can be somehow, credited to the UK equivalent. Wrong! If you are still doubtful try calling 0845 301 3011 (from within the UK only), or contact your local UK pension office and ask for someone who deals with expat queries.

Similar stories exist about lump sum payouts at pension age for both New Zealanders and Irish citizens. I couldn’t find any proof that this is the case – but if you have managed to do it then please let me know.

Isn’t there even the teeniest of loopholes?
There are no restrictions on refunds based on nationality for those residing in Korea on an E-8 (Employment for Training), E-9 (Non-professional Employment), or H-2 (Visiting Employment). If you qualify for these visas you can get back what you paid in – when you leave for good that is.

The other possible glimmer of hope, (which I have read about but not seen happen directly), is to play the dual citizenship card. Should you happen to have a second passport from a country whose citizens are eligible for totalization, or are excluded from paying at all, this may be a solution. The only other way to see anything of your money is to wait for retirement age and get it monthly. (More on that next.)

The alternative to refunds: claiming retirement allowance in/from Korea
It is possible to apply for your monthly pension payment once you reach a certain age, presuming you have paid into the scheme for at least ten years. British, Irish or New Zealand citizens who managed ten+ years of payments into the national pension are also eligible to make a claim. You do not need to be resident in Korea to qualify. If this does or will apply to you I suggest you secure as much documented evidence of payments, and information such as your ARC number before you depart the country for good.

Can I transfer payments I made into the Korean Teacher’s Pension (a.k.a. private pension) into my NPS account?
This is definitely possible, but only if you have at least 20 service years of payments between the two funds.

I heard I can get a loan against my national pension. Is this true?
Currently this is only an option for those aged over 60. Qualified applicants can borrow up to 5 million won at 3% interest.

Are there any other benefits I should know about?
Yes, there’s the ‘lump-sum death payment’ and the ‘survivor’s pension’. When I called I was told that the only foreigners who qualify are those who fall under the totalization agreement. I strongly suspect this is not 100% accurate. If you are married to a Korean national the chances are they can apply for access to your pension contributions – either as a lump sum or a longer term pension. I suggest you talk about this possibility now, as a Korean speaker may be able to make more sense of the rules.

MyThoughts_for_Mac_IconMy thoughts
When I started researching this article I was sure that I would be sharing current and easy to understand information. Sadly this hasn’t been possible for all aspects of the pension. One thing I have learned is that if legal documents are dry and hard to fathom in your native language, they are ten times worse when translated!

There really is a need for a précised multi- language ‘official’ guide to the NPS. Something written in layman’s terms would be an invaluable resource for those of us trying to wade through the system, and make sure we get as many benefits as possible. While providing that is well beyond my ability I do hope that at least some of the information presented in this article has been of use.

Links
Forms for refunds/other benefits http://english.nps.or.kr/jsppage/english/agreement/agreement_03_01.jsp
Great list of all NP offices http://wiki.galbijim.com/National_Pension_Offices
(http://www.nps.or.kr/ )

If you enjoyed the read or found it helpful please do officially ‘like’ the post on Facebook, share it elsewhere, and if you’d like to – leave a comment. The more that foreigners pool resources, experiences and tips the easier life in a foreign country becomes, right?

Also, read up on parts 2 and 3 of this series: The Korean Teachers’ Pension and How to Get Your Pension Refund from South Korea.

P.S. – Write to us at hello@wiggleenglish.com if there is a topic you’d like us to write about. We read ALL our emails.

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photo by: Tax Credits

11 thoughts on “What Are Pensions and How Do They Work? Part 1 of 3: The Korean National Pension

  1. Saffer2013

    Very informative. Thanks. Definitely something I need to look into further – thanks for the helpful links.

  2. Zeedee

    The whole topic of pensions bamboozles me, and so I have just ignored it really. I have heard so many different stories about who gets what and how. I like that a few things have been cleared up here, and I am looking forward to catching the next couple of posts in the series.

  3. Chris Palasz

    When I read the title to this post, I thought it was going to be about a vacation house “pension”! hahaha – I was disappointed when I learned it wasn’t.

    I’d love to know how to find a vacation house pension. Currently, my Korean friends are able to book those and I don’t know how to do it. :)

  4. algernon

    So if a hagwon isn’t taking out pension deductions, that is a violation of pension law, regardless of whether or not my contract has the word “pension” written in it?

    Thanks for this!

    1. Smythe

      Yes, it definitely is. I had an interview with a place a few years back that offered me a ‘no pension’ option. While that sounds good in some ways, (I don’t qualify for the refund), I was lucky enough to have a friend clue me in on the connection between pension and health.

      Out of curiosity I asked about health care provision, which turned out to be a sort of travel insurance plan.

  5. Jessica

    Hi!

    I was wondering if you could possibly clarify something for me.

    I work at a hagwon that says they don’t pay into severance and the national health and pension systems (although during the hiring process I was told that I would receive these things). I am the only foreign teacher at my hagwon, and 1 of 2 full-time employees.

    My question is whether or not my director is breaking the law by not paying into health insurance and pension? Is there any recourse I can take against her?

    I’m almost 2 months in already (still with no ARC), and I’m wondering if I should “jump ship” and get another position?

  6. John

    Hi, as far as you know, is the private KTPF pension information up to date? I hope so, but there are always rumours swirling, one of which is about having to leave the country if you want to collect said pension. The info here would make my day!

    Cheers

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