South Korean government agencies including the Financial Services Commission, Financial Supervisory Service, and Ministry of Employment and Labor are reviewing measures to allow retirement pension holders to take collateral loans against their pensions and to gradually raise the risky asset allocation cap. According to a Money Today investigation on the 12th, the authorities plan to announce these institutional reform measures next month alongside the introduction of a fund-type retirement pension system. The collateral loan provision requires amending the Employee Retirement Benefit Security Act, as current law prohibits pension rights from being transferred, seized, or provided as collateral, making it difficult for private financial institutions to develop such products. Retirement pension reserves reached 501.4 trillion won as of the end of last year, doubling from 255.5 trillion won in 2020, yet the pension receipt rate among accounts that started benefits last year was only 16.5 percent, with lump-sum withdrawals remaining dominant at 83.5 percent.
Government Pursues Legal Amendment to Enable Retirement Pension Collateral Loans
The government is pursuing legal amendments to enable private financial institutions to develop collateral loan products backed by retirement pensions. A government official stated that while collateral loans are technically possible now, the prohibition on transferring or seizing pension rights has made it difficult for products to emerge, and legal revision is under review to activate retirement pension collateral loans. Under the current Employee Retirement Benefit Security Act, pension holders cannot transfer, seize, or provide their pension rights as collateral, preventing banks and insurers from establishing collateral rights. The government appears to judge that allowing partial liquidity of the growing retirement pension reserves better aligns with the pension system's purpose as a retirement safety net.
Mid-term withdrawals for purposes such as home purchases, rental deposits, and medical expenses totaled 2.7 trillion won in 2024, the most recent data available, representing a 12.1 percent increase year-over-year. The scale is estimated to have grown further amid the recent stock market boom. However, experts suggest setting an upper limit on collateral provision. Han Sang-yong, a research fellow at the Korea Institute of Finance, stated that pension holders who have difficulty obtaining first-tier bank credit loans are likely to primarily use this option when they need urgent funds, and given the nature of pensions as future income, a certain percentage cap should be established to preserve the retirement safety net purpose of the pension system.
Retirement Pension Reserves Doubled Since 2020 as Mid-Term Withdrawals Rise
Retirement pension reserves reached 501.4 trillion won as of the end of last year, approximately double the 255.5 trillion won recorded in 2020. Despite this growth, among retirement pension accounts that began receiving benefits last year, the pension receipt rate was only 16.5 percent, with lump-sum withdrawals accounting for an overwhelming 83.5 percent. Mid-term withdrawals by holders still employed, primarily for home purchase funds, rental deposits, and medical expenses, amounted to 2.7 trillion won in 2024, up 12.1 percent from the previous year. The scale is estimated to have increased further with the recent stock market boom.
Risky Asset Cap Under Review for Gradual Increase from Current 70 Percent
Authorities are prominently considering gradually raising the retirement pension risky asset cap, currently capped at 70 percent, to 80 percent or 90 percent starting with Individual Retirement Pension (IRP) and Defined Contribution (DC) types. The assessment is that fine-tuning is necessary given that 11 years have passed since the risky asset cap was raised from 40 percent to 70 percent in 2015, and from the perspectives of enhancing pension returns and respecting subscribers' product choice rights. The government plans to announce these reform measures next month together with the fund-type pension introduction plan.
FAQ
What changes is the South Korean government reviewing for retirement pensions?
The Financial Services Commission, Financial Supervisory Service, and Ministry of Employment and Labor are reviewing measures to allow retirement pension collateral loans and to gradually raise the risky asset allocation cap from the current 70 percent. The authorities plan to announce these reforms next month alongside the introduction of a fund-type pension system.
Why are collateral loans against retirement pensions currently difficult?
Under the current Employee Retirement Benefit Security Act, pension holders cannot transfer, seize, or provide their pension rights as collateral. This legal restriction prevents banks and insurers from establishing collateral rights, making it difficult for private financial institutions to develop collateral loan products. The government is pursuing legal amendments to address this barrier.
How much have retirement pension reserves grown in recent years?
Retirement pension reserves reached 501.4 trillion won as of the end of last year, approximately double the 255.5 trillion won recorded in 2020. However, the pension receipt rate among accounts that started benefits last year was only 16.5 percent, with lump-sum withdrawals accounting for 83.5 percent.
