To Ensure Retirement Benefits Are Safe Even If Companies Fail... Government Begins Reform of "Mandatory External Accumulation" System

With labor, management, and government reaching an agreement on the reform of the retirement pension system, the government has officially begun designing a new system. The core measures are the "Activation of Fund-Type Retirement Pensions," which entrusts management to experts to improve returns, and the "Mandatory External Accumulation," which places retirement benefits with financial institutions outside the company to enhance stability. The government plans to establish specific operational plans for the system by July through a joint public-private working group.

Deputy Prime Minister and Minister of Finance and Economy Koo Yooncheol is delivering an opening remark while presiding over the Emergency Economic Ministers' Meeting held on March 11 at the Government Complex Seoul in Jongno-gu, Seoul. Ministry of Finance and Economy

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On March 10, the Ministry of Employment and Labor announced these follow-up measures to the "Joint Labor-Management-Government Declaration on Retirement Pensions" at the Emergency Economic Ministers' Meeting held at the Government Complex Seoul, presided over by Koo Yoon-chul, Deputy Prime Minister and Minister of Strategy and Finance.

Last month, the Labor-Management-Government Task Force on Strengthening Retirement Pension Functions reached an agreement in its joint declaration on the introduction of fund-type retirement pensions and the mandatory external accumulation of retirement benefits. This is because the current retirement pension system-with its low profitability and high instability due to the risk of corporate bankruptcy-cannot sufficiently guarantee workers' retirement security.

First, the Ministry of Employment and Labor will work with related agencies such as the Ministry of Strategy and Finance and the Financial Services Commission to discuss the details of establishing a "public institution-type fund." The timing and scope of participation in such public funds will be determined after collecting opinions from relevant ministries. The joint declaration proposed the introduction of new fund-type systems-specifically, the "open financial institution-type" and "union-type" funds that coexist with the existing contract-type retirement pensions. It also suggested revitalizing public institution open-type funds by gradually expanding the eligibility for the Small and Medium-Sized Enterprise Retirement Pension Fund, currently operated as "Pureun Ssiat," to include workplaces with up to 300 employees.

The government will also pursue legal and institutional reforms to support the activation of fund-type systems. Detailed improvement measures will be discussed by the working group launched on March 6, which consists of officials from relevant ministries, experts, and representatives from labor and management. For efficient operation, the working group will be divided into a general management team and two subcommittees: Subcommittee 1 (covering licensing, fiduciary duties, and governance) and Subcommittee 2 (covering fund management, disclosure and reporting, and supervision), each conducting specialized discussions.

The mandatory external accumulation of retirement benefits will also be implemented gradually. To prevent wage arrears and strengthen a multi-layered retirement income security system, the government plans to make retirement pension adoption mandatory for all workplaces. Measures will also be implemented to strengthen the enforcement of the external accumulation obligation at workplaces that have already adopted retirement pensions. Additionally, the government will consider various retirement income guarantee plans for workers not currently eligible for retirement benefits, such as those employed for less than one year, special types of workers, and platform workers.

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Meanwhile, at the same meeting, the Ministry of Employment and Labor also reported on the "Current Status and Future Plans for the Basic Plan for Employment Stability during Industrial Transformation." Recently, rapid advances in artificial intelligence (AI) and strengthened carbon neutrality regulations have accelerated industrial transformation. The government is preparing for a "major industrial transformation with labor" amid a mix of pessimistic and optimistic prospects, such as job reductions and productivity improvements. A joint announcement of the basic plan for employment stability during industrial transformation by relevant ministries is scheduled for June.

To minimize potential job shocks during the industrial transformation process, the government will first establish a data-based early warning system for employment crises. The plan is to detect early signs of employment risk and activate a field-oriented response system as soon as a crisis is detected. In addition, support for career transition and reemployment will be expanded to prevent sudden employment shocks caused by industrial transformation.

The government also plans to legislate measures to strengthen the employment safety net for freelancers and platform workers, whose numbers are rapidly increasing in the AI era. Furthermore, it will support job creation in promising new industries such as renewable energy. The Industrial Transformation Employment Safety Subcommittee under the Employment Policy Council will be reorganized into an independent decision-making committee, allowing various stakeholders to discuss policy issues.

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