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If you are working in Korea, you will realize that you have some pension deductions.
Employment in Korea requires mandatory contribution to the National Pension Plan. Sometimes you will hear this being referred to as the National Pension 'Scheme'. In fact, this is even how it’s listed on the government’s National Pension website. Don’t let this sway you, as the connotation to 'scheme' is not meant to be the sometimes derogatory western use of the word, but just literally ‘plan’.
The Korean national pension plan pretty much operates in the same way that you would have if you lived in the US and your employer is making deductions off of your salary to Social Security, or Canadian Pension Plan, if you lived in Canada. And as in the case of those countries, the same redundancy exists of the eventual bankruptcy of the plan, due to the stress that will be placed on the plan, when the baby boom generation fully retires. But that’s another story.
In a nutshell, your employer contributes 4.5% and you contribute 4.5%. As an ESL teacher, your portion is almost always deducted from your paycheck.
[edit] Background
Since the end of the Korean War, a series of Economic Development Plans resulted in a great deal of economic growth in the country with an increase in job opportunities and national income. Due to an increase in the elderly population and issues of social welfare, the result was the National Welfare Pension Act which had been planned for January 1974 but because of the global oil crisis in 1973 and several other postponements, this law did not go into effect until 1988 as the National Pension Act. However, the public pension scheme, known as Private School Teachers' Pension Act, became effective in 1975.
Initially, the National Pension was limited to covering those workers in workplaces with 10 or more full-time employees. It was then extended to cover those workplaces with 5 or more full-time employees and subsequently all full-time employees.
There have been many changes and attempts to stabilize the Korean Pension Fund. It was originally designed to provide high benefits to employees who were only required to make low contributions. However, the plan to provide retired individuals who had made workplace contributions for 40 years with 70% of their average income, had to be changed to 60% instead. The current retirement eligibility age is sixty. Beginning in the year 2013, eligibility age will increase by one year each five years until in 2033, when the retirement eligibility age will be sixty-five.
The National Pension Scheme is planned to provide all members of the general public guaranteed income upon retirement so that they may maintain their standard of living regardless of previous levels of income. The design of this Plan is to “set the income replacement rate high for those with a low income level and low for those with a high income level, those with a high income level can help to secure incomes of those with low income level and finally contribute to social union.”
[edit] Pension refund for foreigners
Under the National Pension Scheme, foreigners receive the same treatment and benefits as do natives of Korea. Theoretically, foreign teachers who leave Korea after contributing to the Pension Fund are not entitled to receive a refund of their monies paid to the fund. However, Korea has entered into mutual agreements with three countries to eliminate dual coverage to foreign employees working in their country as follows:
- Totalization Agreement with the United States since April 1, 2000.
- Totalization Agreement with Canada as of May 1999.
- Contributions only convention with United Kingdom which became effective August 2000.
Several other countries with native English speaking teachers do not have any refund agreements with Korea. Consequently, employees from these countries will not receive a refund of the money paid into the National Pension Scheme. These countries are Australia, New Zealand, and South Africa.
[edit] Pension refund process for Americans
Due to the agreement that the US and Korea have signed, American citizens in Korea are eligible to receive a lump-sum refund of their Korean contributions, after leaving Korea. Before you leave Korea, go to the nearest Pension office with your passport, ARC card and your proof of onward travel, proving your departure from Korea. You will also need to provide them with a copy of your US bank book or your US bank account information to where they can transfer your refund to. The refund process may take between 4-8 weeks.
[edit] Pension refund process for Canadians
Due to the agreement that Canada and Korea have signed, Canadian citizens in Korea are eligible to receive a lump-sum refund of their Korean contributions, after leaving Korea. Before you leave Korea, go to the nearest Pension office with your passport, ARC card and your proof of onward travel, proving your departure from Korea. You will also need to provide them with a copy of your Canadian bank book or your Canadian bank account information to where they can transfer your refund to. The refund process may take between 4-8 weeks.
[edit] Pension status for citizens of the U.K.
Unlike the US and Canada, Korea and the UK have only agreed to a 'contribution only' convention, at this time. What this means to UK citizens working in Korea, is that your Korean pension contributions can be added to your accruing pension credits in the UK, of which you can begin to receive when you retire in that country.
[edit] Pension status for citizens of Australia, New Zealand, and South Africa.
Unfortunately, these countries do not have any such agreement with Korea at this time, therefore, although you are required to pay Korean pension, you will not be able to transfer those pension contributions to your home country's pension plan nor be eligible to receive any refund. You'll need to stay and retire here to be able see the contributions that you accrued while in Korea. Note: As of June 1, 2008, Australia and Korea will implement an agreement which will enable Australians to receive lump sum pension refunds.
Actually: It should be noted that South Africans are completely exempted from paying any pension at all. Because of the fact that Koreans are not forced to pay any pension in South Africa. Dual agreement. There are a lot of countries in Africa which are not required to pay pension, but South Africa is one of the few countries whose citizens are employed in Korea. Make sure that if you are a South African that you are not paying the pension. It is very difficult to get the money back after you payed it in... and it amounts to a lot of money you will lose, if you don't make a point of sorting this out.
[edit] Pension status for people who have dual citizenship
If you have dual citizenship that includes a naturalized citizenship in US or Canada, you are eligible to receive a refund just as citizens of those countries. You will likely be asked to provide both passports and possibly your naturalization papers.
| Galbijim says:
Make sure that you collect paystubs every pay period that clearly show your deductions. There are some employers out there that will try to avoid paying pension. When nearing the end of your contract, make sure that you contact a local Pension office with your ARC, contract, and paystubs, so they can determine if your employer has been contributing the proper amount. Don't leave this too late, just in case there is a discrepancy that you need to resolve with your employer.
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[edit] What does Totalization mean?
This means that foreign nationals of one contracting country who are employed in the other contracting country are exempt from making social security contributions to both countries, thereby reducing your out of pocket payments for dual coverage. You may have some credits in Korea and some credits in your country of origin that, taken by themselves,would not equal enough credits for you to be eligible for retirement benefits. Totalization agreements allow you to combine credits from both countries.
Natives of countries who have contributions-only agreements, such as the United Kingdom, will not be required to pay for dual coverage but their credits are not added together to assist in eligibility for retirement benefits.
[edit] Retiring in Korea with Pension
Korean nationals and foreign citizens who have retired in Korea can currently receive full retirement benefits at age 60. This age is being raised one year per every five years so that retirement will be at age 65 by the year 2033. You must have worked at least 20 years and can no longer be employed to retire at age 60 at the time of this writing.
- If you have had insurance coverage between 10 and 19 years and are age 60 or older, you may be eligible for a reduced old-age pension and you cannot continue to be employed.
- If you are between the ages of 60 and 64 and have the minimum of 10 years insurance coverage, you may retire with an active old-age pension and continue to be employed.
- If you are between the ages of 55 to 59 with at least 10 years of coverage, you may be eligible for early old-age pension. However, you can no longer continue to be employed.
- If you are a minimum of 60 years old with less than 10 years of insured coverage and either leave Korea permanently and give up your Korean citizenship, you will then be eligible for a lump-sum refund of your contributions to the pension fund.
[edit] National Pension Offices
National Pension Offices
[edit] National Pension Website
National Pension Service
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