Everyone explains how to build a pension in Korea — claim the credit, stack the three tiers. Almost nobody explains how to take it out. Which is a problem, because that is where the tax differences are largest.
1. What it costs. Draw a private pension at ₩15 million a year or less and the rate stops at 3.3–5.5%. And the lifetime-annuity rate fell from 4.4% to 3.3% for payments received from 1 January 2026 — most guides still circulating say 4.4%.
2. Where the risk is. ₩15 million is a cliff, not a step — cross it and the entire year's pension income, not the excess, goes into aggregate taxation. And the withdrawal order is fixed by law, with the untaxed money leaving first — a light first-year bill does not stay light.
3. What to do. For retirement money, year 11 is the hinge: the annual limit lifts and the reduction rises from 30% to 40%. Designing a plan that ends at exactly ten years stops just short of the best band.
Public and private pensions run on different tracks
The National Pension and a pension savings account or IRP are taxed through different procedures. The tax accountants’ newspaper guide for the 2025 income year separates them:
Public pension — “the payer withholds monthly according to the simplified tax table, and on the January payment of the following year performs a year-end settlement at the basic income tax rates, concluding the tax liability.”
Private pension — “the payer withholds at rates of 5%, 4% and 3%, and since no year-end settlement is performed for private pension income, the recipient must file a global income tax return as a matter of principle, other than for the separate taxation described below.”
So the National Pension Service settles your public pension for you; nobody does that for your private pension. Another article in the same paper puts it directly: “where there is only National Pension income, it concludes with the withholding done by the Service. However, where there is other income, it must be aggregated with that other income.”
| Item | Public pension | Private pension |
|---|---|---|
| Withholding | Monthly, simplified table | 5% · 4% · 3% |
| Year-end settlement | Yes (January payment) | No |
| Default outcome | Liability concluded | May filing unless separately taxed |
| If you have other income | Aggregate and file a global income tax return | |
National Pension: January 2002 is the dividing line
The NPS guide to taxation of pensions and lump sums sets the scope:
- Taxable income is “contributions from the January 2002 portion onward, plus interest and additional interest” — amounts arising from earlier contributions fall outside the taxable base.
- “The withholding agent (the Service) withholds pension income tax [retirement income tax] when paying the old-age pension [lump-sum refund], under article 127 of the Income Tax Act.”
- “Disability pensions and survivor pensions are non-taxable”, and “a lump-sum refund received by reason of death is non-taxable”.
The longer you contributed, the more of your entitlement predates 2002 and falls outside tax — which is usually why the withheld amount is smaller than people expect. To estimate the pension itself, start with the National Pension calculator.
The private-pension fork: ₩15 million a year
This is the most important thing in the article. From the FSS consumer portal (February 2025):
“Where the annual pension amount received is ₩15 million or less, a low-rate pension income tax (3.3%–5.5%) applies.”
“Where it exceeds ₩15 million, you may choose between 1. aggregating the entire pension amount received with other income and taxing it globally (6.6%–49.5%), or 2. separate taxation (16.5%).”
Note the phrase “the entire pension amount received”. Exceed ₩15 million by ₩10,000 and it is not the ₩10,000 that gets taxed harder — the whole year’s pension moves across. This threshold is a cliff, not a step.
Fortunately most pension accounts let you adjust the annual payout. Checking your year-to-date total once, in December, prevents nearly all of these accidents.
But what actually counts toward the ₩15 million?
This is the part that decides whether the threshold ever touches you. Not every pension counts. The NTS sets out four separate categories for separate taxation:
“Where pension income excluding public pension income falls under the following, it is taxed separately”
“① Pension income from receiving deferred retirement income paid into a pension account”
“② Pension income where credited contributions and investment growth are withdrawn for medical purposes, natural disaster or other unavoidable reasons”
“③ Where the total of pension income other than ① and ② is ₩15 million or less a year, that pension income”
“④ Even where ③ exceeds ₩15 million a year, separate taxation at 15% may be elected in the global income return”
Two short phrases settle two questions that had been open here for a long time.
| This money | Counts toward ₩15m? | Why |
|---|---|---|
| National Pension and other public pensions | No | “excluding public pension income” |
| Severance-funded (deferred retirement income) | No | It is ①, and ③ says “other than ① and ②” |
| Medical / unavoidable-reason withdrawals | No | It is ② |
| Credited contributions + growth, taken as an ordinary pension | Yes | This is what ③ refers to |
So the only thing that can trip the ₩15 million cliff is the money you built up with tax credits in a pension savings account or IRP, plus its growth. However large your National Pension is, it does not enter this calculation, and neither does severance taken as a pension. People receiving both often worry that “together they go over ₩15 million” — they are not added together.
※ Until this revision both of these were flagged here as unverified. The FSS material separates public and private pensions from the outset but never says outright that one is excluded. The NTS original settled it.
Why the same rule is printed with different numbers
Search around and you will find the same item written as 3.3–5.5% in one place and 3, 4, 5% in another. Both originals really do differ:
| Item | FSS (FINE portal) | NTS · tax accountants’ newspaper |
|---|---|---|
| Private pension withholding | 3.3% · 4.4% · 5.5% | 3% · 4% · 5% |
| Separate taxation above ₩15m | 16.5% | 15% |
| Non-pension withdrawal (other income) | 16.5% | 15% |
| Global taxation range | 6.6–49.5% | Basic rates (6–45%) |
The rule is simple. The FSS quotes the effective rate including local income tax; the NTS quotes the rate in the Income Tax Act itself. Local income tax runs at 10% of income tax, so 5% becomes 5.5% and 15% becomes 16.5%. Neither is wrong — they are naming the same rule. What actually leaves your account is closer to the inclusive figure.
※ The NTS withholding table prints 5%, 4% and 3%, the 15% separate-taxation election above ₩15m, and 15% on non-pension withdrawals. Both are official government sources and the figures sit at exactly a 1.1× ratio. Neither one actually writes “including local income tax” — that reading is inferred from the ratio, and is flagged here rather than asserted.
Set the two agencies' tables side by side and the discrepancy resolves into one thing.
The lifetime-annuity rate dropped in 2026
The rate falls with age — and one band moved this year. The NTS page puts a lifetime contract at 3%, with the footnote “applies to pension received on or after 1 Jan 2026 (previously 4%)”.
| Payout type | Age | Through 2025 | From 2026 |
|---|---|---|---|
| Fixed-term | 55–69 | 5.5% | 5.5% |
| 70–79 | 4.4% | 4.4% | |
| 80 and over | 3.3% | 3.3% | |
| Lifetime | 55–79 | 4.4% | 3.3% ↓ |
| 80 and over | 3.3% | 3.3% |
That is a bigger shift than it looks. In your sixties the gap between lifetime and fixed-term widened from 1.1 to 2.2 percentage points — 5.5% against 3.3%. A lifetime annuity is now 3.3% at every age.
The trade-off is in the NTS’s own words: it is a contract under which you receive the pension “until death” and “cannot terminate it midway”. The rate alone should not decide it.
※ The through-2025 column comes from the FSS FINE portal (February 2025); the 2026 column from the NTS. The NTS table prints income tax only (3%, 4%, 5%), so the figures above are converted to include local income tax. Whether the three fixed-term bands also changed in 2026 could not be confirmed — the NTS table is organised by the recipient’s age rather than by payout type, and the change note is attached only to the lifetime row.
The withdrawal order is already fixed
A pension account holds money of different characters, and the order in which it leaves is set. In the FSS’s words:
“1. amounts that did not receive the tax credit → 2. deferred retirement income → 3. the taxable amount”
The untaxed money leaves first. So early withdrawals carry a light tax load and later ones get heavier. Do not read a cheap first year as the steady state.
The third step is often paraphrased as “credited contributions plus investment returns”, but the source says “the taxable amount”, and that is what we use here.
The withdrawal limit: cross it and it stops being a pension
There is a cap on how much counts as pension income in a year. The FSS prints the formula:
“Annual pension withdrawal limit = account valuation / (11 − pension withdrawal year) × 120%”
“Amounts withdrawn from a pension account in excess of the limit are treated as non-pension withdrawals.”
Two further conditions on the same page:
- “Where the pension withdrawal year is 11 or later, the withdrawal limit does not apply.”
- “Where the account was opened before 1 March 2013, the withdrawal year starts from year 6.” Older accounts begin further along.
Because the denominator is 11 − year, the limit widens quickly as the years pass. By year 10 the denominator is 1, giving 120% of the valuation — effectively no cap. The first few years are the tightest.
Severance taken as a pension is discounted — year 11 is the hinge
“Where retirement benefits are received within the annual pension withdrawal limit, 30% of the retirement income tax is reduced through year 10.”
“From year 11 the withdrawal limit no longer applies, so withdrawals are free, and 40% of the retirement income tax is reduced.”
Two things improve at the same moment in year 11 — the cap lifts and the reduction steps up from 30% to 40%. Which means a plan that ends exactly at year 10 stops just short of the best band.
And it steps down again in year 21
The NTS states this as the share you pay rather than the share reduced, and there are three bands — deferred retirement income taken as pension is taxed at “(deferred retirement income tax / deferred retirement income) × 70% (60%, 50%)”, with the footnote “60% where the actual pension-receipt year exceeds 10 and is 20 or less, 50% where it exceeds 20 (for pension received on or after 1 Jan 2026)”.
| Actual pension-receipt year | Share of retirement income tax paid | In other words |
|---|---|---|
| 10 or fewer | 70% | 30% reduction |
| More than 10, up to 20 | 60% | 40% reduction |
| More than 20 | 50% | 50% reduction |
Spread severance over more than twenty years and the retirement income tax halves. Starting at 55, twenty years runs to 75 — not an unrealistic plan given life expectancy.
※ The footnote marks both the 60% and the 50% band as applying from 1 January 2026, yet the FSS document from February 2025 already describes the 40% reduction from year 11. Which band is actually new could not be settled from these two sources. It reads as though the over-20-year band was added, but that is not asserted here. Check your own case with the tax helpline (126).
For the underlying scheme types see DB, DC and IRP explained, and for a rough figure the severance calculator.
The discount does not creep up year by year. It steps, in three.
Breaking the account costs more — with one exception
Terminate without a statutory reason and, per the newspaper, “a 16.5% other-income tax is levied on the self-contributions that received the tax credit and on the investment returns” — potentially more than you ever received.
Where an unavoidable reason is recognised, “only a low-rate (3.3–5.5%) pension income tax is levied”. But there is a deadline attached:
“You must submit supporting documents to the financial institution within six months of the date the unavoidable reason is confirmed.” (FSS)
Having the reason is not enough — file late and the low rate is lost. The NTS sets two deadlines: for medical purposes, “within six months of the date the medical expense was paid”; for other unavoidable reasons, “within six months of the date the reason is confirmed”.
The list of reasons is broader than most people assume — natural disaster, the holder’s death or emigration, the holder or a dependant needing three months or more of treatment, 15 days or more of hospitalisation after a disaster, bankruptcy, and suspension of the provider. A dependant’s illness qualifies, and the text brackets “eligible for the basic deduction, with no income limit”. More detail in the pension savings and IRP tax credit.
The order to plan in
- Check your year-to-date private pension total — the ₩15 million cliff comes first.
- Work out your withdrawal limit — tightest in the early years.
- If severance is in the account, see whether you can stretch past year 11.
- Budget health insurance alongside it — a larger pension affects both your regional premium and dependant status. See health insurance after you retire.
- Set it against the monthly number in what retirement actually costs.
Questions people ask
Does the National Pension count toward the ₩15 million?
No. The NTS applies the test to “pension income excluding public pension income”. However large your National Pension is, it stays out of the private-pension calculation.
Does pension income from severance count toward it?
No. Deferred retirement income taken as a pension is its own category ①, and the ₩15 million test in ③ is explicitly for income “other than ① and ②”.
Then what does count?
The money you built up in a pension savings account or IRP while claiming the tax credit, plus its investment growth, taken as an ordinary pension. Withdrawals for medical or unavoidable reasons fall under ② and are also out.
Can I take everything out at 55?
Anything beyond the withdrawal limit is treated as a “non-pension withdrawal”. Since the limit is narrowest in the early years, in practice no.
Fixed-term or lifetime?
On rate alone, lifetime is now 2.2 points cheaper between 55 and 69 (3.3% against 5.5%, from 2026). But a lifetime annuity cannot be terminated midway and leaves less room to shape the payout, so the rate should not be the deciding factor.
What about National Pension contributions made before 2002?
The NPS defines taxable income as “contributions from the January 2002 portion onward, plus interest and additional interest”. Amounts arising from earlier contributions fall outside the taxable base.
Sources and where to check
- National Tax Service — Pension income — withholding. Source of the 5% / 4% / 3% withholding rates, the 3% lifetime-contract rate and its “from 1 Jan 2026, previously 4%” footnote, the 15% separate-taxation election above ₩15m, the 15% other-income rate on non-pension withdrawals, and the 70% (60%, 50%) bands for deferred retirement income.
- Financial Supervisory Service, FINE portal — retirement planning tips (21 February 2025). Source of the age-based rates, the ₩15 million threshold and “entire pension amount received”, the withdrawal order, the withdrawal limit formula, the 30% / 40% reductions and the six-month document deadline.
- National Pension Service — taxation of pensions and lump sums. Source of “from the January 2002 portion onward”, the Service’s withholding duty, and “disability and survivor pensions are non-taxable”.
- Korean Association of Certified Public Tax Accountants newspaper — points to watch when filing 2025 income tax (4 May 2026). Source of the public pension’s simplified-table withholding and January settlement and the private pension’s 5% · 4% · 3% withholding.
- Same newspaper — May tax news (7 May 2025). Source of “where there is only National Pension income, it concludes with the withholding done by the Service”.
- Same newspaper — check the conditions for low-rate tax on unavoidable early withdrawal (25 January 2022). Source of the 16.5% other-income tax and the IRP-versus-pension-savings difference in qualifying reasons.
Written as of July 2026. The age-based rates, the ₩15 million threshold and the “entire pension amount received” wording, the withdrawal order, the limit formula, the retirement income tax reductions, the six-month document deadline, and the National Pension’s January 2002 basis and non-taxable categories all come from the sources above. The NTS original was obtained this round and the rate tables were corrected against it — the lifetime rate falling to 3% (3.3%) from 2026, and the three 70% / 60% / 50% bands for deferred retirement income. Two long-standing gaps also closed: the NTS original confirms that both the National Pension and severance-funded pension income stay out of the ₩15 million test. Two things still could not be verified: (1) which of the 60% / 50% bands is the new one; and (2) whether the fixed-term bands are unchanged in 2026. Outcomes vary widely with your income mix and account history — confirm with your provider or the tax helpline (126) before planning. This is not tax or investment advice.
