Severance Pay & IRP Mandatory Transfer in Korea: Complete Guide for Foreign Workers

Severance Pay Must Now Be Received Through an IRP

Many workers wonder how to receive their severance pay (퇴직금) when they leave a job. Since April 2022, the standard method is to transfer severance pay into an Individual Retirement Pension (개인형퇴직연금, IRP) account held in the worker's own name. Article 9 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제9조) stipulates that when an employer pays retirement benefits (퇴직급여), they must transfer the funds to the IRP account designated by the worker.

Note for foreign workers: Your employment contract may specify different payment arrangements, but the statutory minimum standard is IRP transfer as described below.

The Principle and Exceptions of Mandatory IRP Transfer

Principle: Transfer to an IRP Account

The employer must deposit the retirement benefits into the worker's IRP account within 14 days of the worker's retirement date (Act on the Guarantee of Workers' Retirement Benefits, Article 9). If this deadline is missed, a delay interest rate of 20% per annum accrues under Article 17 of the Enforcement Decree of the Labor Standards Act (근로기준법 시행령 제17조), and the employer may also be subject to criminal punishment.

Exception 1: Retirement Benefits of ₩3 Million or Less

Under the Ministry of Employment and Labor Notice (Notice on Amounts Qualifying as Exceptions to Transfer to the Individual Retirement Pension Scheme), if the retirement benefit amount is ₩3 million or less, the worker may receive the funds directly into a regular bank account in their own name without an IRP. Short-term workers and part-time workers often fall into this category.

Exception 2: Workers Aged 55 or Older at Retirement

Under Article 9 of the Enforcement Decree of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 시행령 제9조), workers who are aged 55 or older at the time of retirement are also exempt from the mandatory IRP transfer, as they have already reached the pension-eligible age.

Exception 3: Other Statutory Exceptions

Direct payment without IRP transfer is also permitted in cases prescribed by law, such as when the worker has died or when a foreign worker is leaving Korea (출국).

Why Receiving Severance Pay Through an IRP Reduces Your Tax Burden

When severance pay is received into an IRP account, payment of retirement income tax (퇴직소득세) is deferred. That is, no tax is paid when the funds are deposited; tax is paid only when you actually withdraw the money.

• Received as a pension after age 55: Pension income tax (연금소득세) of 3.3–5.5% applies → significantly reduced tax burden
• Early withdrawal (before age 55): Retirement income tax + other income tax (기타소득세) of 16.5% may be imposed → disadvantageous

If you plan to use the funds as retirement savings over the long term, keeping the IRP and receiving it as a pension is far more tax-efficient.

How to Open an IRP Account

1. Choose a financial institution: You can open an account at any bank, securities firm, or insurance company registered as a retirement pension provider.
2. Visit in person with your ID, or open online via a mobile app: Most financial institutions support non-face-to-face account opening through their mobile apps.
3. Notify your employer of the account number: If you open the account before retiring and provide your employer with the IRP account number, the transfer within 14 days will proceed smoothly.

Calculate Your Severance Pay First

To know in advance how much will be deposited into your IRP, you need to calculate your severance pay accurately. You can use the severance pay calculator at workbear.kr to easily check your average wage, years of service, and estimated severance amount. Use the calculator first to confirm whether your severance pay is ₩3 million or less.

This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a certified labor attorney (노무사) or lawyer.