Everyone explains how to build a pension — claim the tax credit, stack three tiers. Almost nobody explains how to take it out.
Yet this is where the tax gap is widest. The same money from the same account can be taxed three times differently, depending on order and pace.
Three essentials — ① ₩15M a year is the dividing line for private pensions ② the rate falls with age (5.5% → 3.3%) ③ lump sums face 16.5%, while spreading payments costs far less.
1. Your account holds three kinds of money
| Source | Tax when taken as pension |
| ① Contributions without tax credit | Tax-free (already taxed) |
| ② Severance rolled in | Severance tax reduced 30–40% |
| ③ Credited contributions + returns | Pension income tax 3.3–5.5% |
Withdrawal order is automatic — tax-free money first, then severance, then credited contributions and returns. It's designed so the cheapest money leaves first, which keeps early withdrawals lightly taxed.
2. Rates fall as you age
| Age when received | Rate (incl. local tax) |
| 55–69 | 5.5% |
| 70–79 | 4.4% |
| 80+ | 3.3% |
| Lifetime annuity option | 4.4% even at 55–69 |
So later is cheaper. Draw lightly while other income exists, then increase with age.
3. ⭐ The ₩15M rule
| Annual private pension | Treatment |
| ₩15M or less | Low separate taxation (3.3–5.5%) — not combined with other income |
| Above ₩15M | Choose comprehensive taxation or 16.5% separate |
Careful — exceeding it affects the whole amount. Go over by even a small sum and the entire pension, not just the excess, moves to the higher treatment. Managing right at the threshold matters.
Fortunately, most providers let you adjust the amount at least annually.
What doesn't count toward ₩15M
- National pension — a public pension, counted separately (though itself comprehensively taxed)
- Pension from severance — separately taxed in full, outside the threshold
- Non-credited contributions — tax-free anyway
So severance-funded IRP payments sit outside the ₩15M calculation — a point that leads some retirees to draw less than they safely could.
4. Severance is cheaper as a pension
| Lump sum | 100% of severance tax |
| Pension, years 1–10 | 70% → 30% reduction |
| Pension, year 11 onward | 60% → 40% reduction |
Practical tip — because the discount deepens from year 11, drawing the minimum for the first decade and increasing afterwards is more tax-efficient.
5. ⚠️ Expensive ways to withdraw
| Closing the account early | 16.5% on credited contributions and returns |
| Exceeding the withdrawal limit | Treated as non-pension: 16.5% (severance taxed at 100%) |
| Withdrawing before 55 | Not treated as pension income |
Breaking the account for cash can cost more than the credits you received.
There are exceptions: withdrawals for unavoidable reasons (medical costs, disaster, bankruptcy) can keep the low separate-taxation treatment if you submit documentation within six months.
6. A strategy by age
| 55–59 | Still earning? Withdraw minimally — it's your last window for tax credits |
| 60–64 (income gap) | Private pension carries you — keep within ₩15M and use severance IRP alongside |
| 65+ (national pension starts) | Slow the private pension down |
| 70+ | Rate drops to 4.4% — drawing more costs less |
In short: slow while working, up to the threshold during the gap, faster once older.
7. The national pension plays by different rules
- It's always comprehensively taxed — no separate option.
- A pension income deduction softens the effect considerably.
- It is not combined with the ₩15M private pension threshold.
- Timing decisions affect the amount more than the tax (early vs deferred).
FAQ
Is exceeding ₩15M always bad?
No. With little other income, comprehensive taxation can be better. You choose, so compare.
Does the balance still grow?
Yes — uninvested amounts keep compounding with tax deferral.
Can I change the amount later?
Most providers allow annual adjustments.
What about rolling a matured ISA into an IRP?
It adds a tax credit of 10% of the transferred amount, up to ₩3M, on top of the normal limit.
A pension is half accumulation, half withdrawal. Remembering one number — ₩15M — changes the tax materially.
This is general information, not tax or financial advice. Rates and thresholds change and the better option depends on your income mix — confirm with Hometax, your provider or a professional.
