Korean retirement planning is described as “three tiers”: the National Pension, the workplace retirement pension, and private pension savings. What almost nobody explains is which one to fill first.
1. When does money start, and how much. Tiers two and three open at 55; tier one at 65 for anyone born from 1969. The order is not “national → workplace → private” but “workplace and private → national”, with a ten-year gap built into the system.
2. What is the risk. Age 55 alone is not enough — you need an application to start, five years in the plan, and withdrawal within the pension limit, all three (Income Tax Act Enf. Decree art. 40-2(3)). And only tier one is indexed to prices and state-guaranteed.
3. Which tier first. Tier three allows ₩18M a year in, but only ₩6M earns the tax credit — a threefold gap. The credit rate splits at 16.5% and 13.2%, worth ₩198,000 a year on ₩6M (our calculation).
When can each tier start paying
| Tier | Scheme | Start age | Authority |
|---|---|---|---|
| 3 | Pension savings | 55 + five years in the plan | Income Tax Act Enf. Decree art. 40-2(3) |
| 2 | Retirement pension (DB/DC) | 55 + five years in the plan | same provision |
| 1 | Early old-age pension | 60 | National Pension Act art. 61(2) |
| 1 | Old-age pension | 65 | Act No. 8541, Supp. Prov. 8 |
Tiers two and three open first, and tier one arrives a decade later. The real order is workplace and private first, state last — not the other way round.
Which makes the 55-to-65 stretch the decisive part of any retirement plan. How to cross it is covered in bridging the pension gap.
Turning 55 is not enough on its own. The source requires all three conditions —
① withdraw after age 55, having applied to start payments with the account provider
② withdraw after five years from joining ( waived if deferred retirement income sits in the account)
③ withdraw within the annual withdrawal limit
Tier 1 — the National Pension
The thickest layer, and the last to open. The payment rate is 50% at ten insured years, plus 5% for each additional year, reaching 200% at forty (our calculation).
- It is indexed to prices — National Pension Act art. 51(2). Of the three tiers, only this one has that property.
- The state guarantees payment — art. 3-2 of the same Act.
- Income above the ₩6.59 million standard monthly ceiling raises neither contributions nor benefits. The higher the salary, the less tier one alone can carry.
The full structure is in our National Pension guide, and ways to add insured years in six ways to increase your pension.
Tier 2 — the retirement pension (DB, DC, IRP)
The source defines it as a scheme in which “an employer sets aside funds for retirement benefits with an external financial institution, the employer or the employee manages them, and on retirement the accumulated benefit is paid as a pension or a lump sum.”
| Type | Definition in the source | Who carries the risk |
|---|---|---|
| Defined benefit (DB) | “the level of benefit the employee will receive is determined in advance” | the employer |
| Defined contribution (DC) | “the employer's contribution is fixed in advance and the benefit varies with investment performance” | the employee |
| Individual (IRP) | “an IRP account may be opened for additional contributions beyond the employer's” | the employee |
(Employee Retirement Benefit Security Act art. 2(8)–(10), art. 24(3))
DB and DC differ on exactly one thing: who bears investment risk. In the source's own words, a DC benefit “varies with investment performance” — manage it well and you get more; leave it and you may get less.
Leaving a job moves the money to an IRP automatically. The source: “where a DB or DC member retires, the retirement benefit shall be transferred to the individual retirement pension account designated by the member” (arts. 17(4), 19(2)). That is the rule, not an option (with exceptions).
There is also a withdrawal limit. The source states that “where the withdrawal year is the eleventh or later, the entire amount is treated as within the limit” — from year eleven the cap effectively disappears. The limit formula itself appears only as an image, so we could not transcribe it.
Tier 3 — pension savings
Defined in the source as “a tax-favoured financial product taxed as pension income where funds are paid in over a period and withdrawn in pension form” (Income Tax Act art. 20-3(1)2).
| Feature | Savings trust | Savings fund | Savings insurance |
|---|---|---|---|
| Contributions | flexible | flexible | regular |
| Return | performance-based | performance-based | declared rate |
| Principal guaranteed | no | no | yes |
| Deposit protection | covered | not covered | covered |
The fund version carries no deposit protection. All three share the name “pension savings”, and this is the row where they part. The trust version has not been sold since 2018, and only accounts opened through 2017 have principal preserved (source footnote). How Korean deposit protection works is in the deposit protection limit.
The two numbers people miss — ₩18M and ₩6M
- Annual contribution limit: ₩18 million (Enf. Decree art. 40-2(2)1(a), (3)2), with at least five years of contributions.
- The tax credit limit is ₩6 million (Income Tax Act art. 59-3(1)).
The gap is ₩12 million — exactly three times (our calculation). What you may pay in and what earns a credit are different numbers. The source notes that amounts “above ₩6 million earn no tax credit, but taxation is deferred until withdrawal and the low pension-income rate applies on receipt.”
| Global income | Total salary | Credit rate | On ₩6m paid in |
|---|---|---|---|
| ₩45m or less | ₩55m or less | 16.5% | ₩990,000 |
| Above ₩45m | Above ₩55m | 13.2% | ₩792,000 |
A single salary line at ₩55 million moves the credit by ₩198,000 a year (our calculation). How gross becomes net is in our net pay table.
So which tier do I fill first
The source does not rank them. But listing only the properties it confirms points in a direction.
- Tier one has to be filled before it opens at all — below ten insured years there is no pension. Gaps in your record come first.
- Tier two is already accumulating — the employer pays in. With DC, investment performance becomes your pension, so leaving it untouched is itself a choice.
- Tier three is most efficient up to ₩6 million — at a salary of ₩55 million or less the credit is 16.5%, better than the band above.
- Up to ₩18 million still defers tax without a credit. The source itself notes this as a reason to pay in beyond the credit limit if you can.
This ordering is ours, not an agency recommendation. The source describes the schemes and offers no priority. The right answer depends on income, age and existing history.
Questions that remain
Can I draw tiers two and three at 55?
Not on age alone. All three conditions — 55, five years in the plan, and within the withdrawal limit. The five-year test is waived where deferred retirement income is in the account.
Is DB or DC better?
The source takes no view. The confirmed difference is one thing: a fixed benefit level (DB) against a benefit that varies with performance (DC).
Which pension savings product should I pick?
The source recommends none. The dividing lines in its table are principal guarantee and deposit protection — the fund version has neither.
Is paying the full ₩18 million wasteful?
No. Amounts above ₩6 million simply earn no credit, while tax deferral and the low rate on receipt still apply, per the source. The actual pension-income rate is not on this page.
Do three full tiers make a retirement?
This article does not judge that. The source explains the schemes and sets no target retirement fund. See retirement preparation by age.
Sources
- Ministry of Government Legislation — agency source — Easy Law, “Retirement planning and pension schemes > retirement pension” (checked 30 July 2026). Source for the DB, DC and IRP definitions, the three withdrawal conditions, the mandatory IRP transfer and the eleventh-year rule — each with its statutory citation.
- Ministry of Government Legislation — agency source — Easy Law, “pension savings” (same date). Source for the three-product comparison including deposit protection, the ₩18 million contribution limit, the ₩6 million credit limit, the 16.5% and 13.2% rates and the five-year requirement.
- National Pension Service — agency source — “Old-age pension” (same date), plus its benefit calculation page. Source for the start ages by birth year, the age-60 early claim, the 50–200% payment rates, price indexation (art. 51(2)) and the state guarantee (art. 3-2).
- Our own calculation — the ten-year gap between 55 and 65, the payment rates by insured years, the 3x ratio between the two limits and the ₩990,000 / ₩792,000 credits and their ₩198,000 difference.
Where to check further
- The pension withdrawal limit formula. It appears in the source only as an image, so we could not transcribe it — the provider holding your pension account calculates your own limit.
- The reduced tax rate on pension withdrawals. The source stops at “the benefit of low-rate taxation” — the National Tax Service helpline (126) gives the rate by age and by source of funds.
- Which tier to prioritise. The source makes no recommendation — the order here is ours, drawn from the properties the source does state. For your own case, take the National Pension Service (1355) and your provider separately and overlay the answers.
As of July 2026. The definitions, conditions, limits and credit rates are the Easy Law and National Pension Service texts; the credit amounts, ratios and the gap in years are our arithmetic. This is general information, not financial advice. For tier one see the National Pension guide, for the 55-to-65 stretch bridging the pension gap, and for those without income the Basic Pension. Whether your income and property pass its test can be checked with the Basic Pension income test calculator. What tier three pays back in tax can be worked out with the pension savings and IRP credit calculator.
