Contributing 9 million won a year across a yeongeum-jeochuk (private pension savings account) and an IRP (Individual Retirement Pension) returns at most 1,485,000 won in Korean income tax credits. Earn above 55 million won in gross salary and the same 9 million won returns only 1,188,000 won. The two accounts carry separate caps — 6 million and 9 million won — and the income threshold that sets the credit rate depends on what kind of income you have, so filling the cap does not by itself fix the refund. One larger variable remains: the credit is not tax forgiven, it is tax postponed.
16.5% or 13.2%?
There are only two rates. Per Toss Bank, wage earners with gross salary at or below 55 million won get 16.5%; above that, 13.2%. The trap is which income figure decides it. Wage-only earners are judged on gross salary, but anyone with business or rental income has no gross-salary figure at all and is judged on aggregate income instead — Samsung Securities puts that boundary at 45 million won.
| Income type | Test figure | 16.5% band | 13.2% band |
|---|---|---|---|
| Wage income only | Gross salary | ≤ 55M won | > 55M won |
| Business/other income mixed in | Aggregate income | ≤ 45M won | > 45M won |
These are not the same number. Gross salary is annual pay net of non-taxable allowances; aggregate income subtracts the wage income deduction on top of that. A worker just above 55 million won who assumes the 45 million test applies misjudges the refund by nearly 330,000 won — the 3.3 percentage point gap on a 9 million won contribution is 297,000 won.
Why there are two caps
The pension savings account alone caps at 6 million won, an IRP alone at 9 million, and using both together still caps the combined credit at 9 million. Several combinations reach the same credit, so what separates them is not tax but account restrictions. Per KB Kookmin Bank, an IRP is open only to people with income, allows at most 70% of contributions in risk assets, and permits early withdrawal only for statutory reasons such as home purchase, jeonse (lump-sum deposit lease) obligations, or long-term care. The pension savings account has neither restriction.
| Item | Pension savings | IRP |
|---|---|---|
| Standalone credit cap (M won) | 6 | 9 |
| Combined cap (M won) | 9 | |
| Eligibility | Anyone | Income earners |
| Risk asset ceiling (%) | None | 70 |
| Early withdrawal | Relatively free | Statutory reasons only |
That is why filling 6 million won in the savings account first and putting the remaining 3 million into the IRP is the common split — identical credit, but only 3 million won is locked. Route all 9 million through the IRP and 2.7 million won sits in guaranteed products by rule.
A 1,485,000 won credit leaves 990,000 won
The credit defers tax rather than cancelling it. Credited contributions and investment gains are taxed as pension income on the way out — 5.5% at ages 55 to 69, 4.4% from 70 to 79, and 3.3% from 80, local tax included. So what you keep is the immediate refund minus the pension income tax paid decades later. The table below works that through for a 9 million won contribution, counting only tax on the principal since tax on gains depends on return assumptions.
| Item | Gross salary ≤ 55M | Gross salary > 55M |
|---|---|---|
| Credit rate (%) | 16.5 | 13.2 |
| Refund on 9M won (won) | 1,485,000 | 1,188,000 |
| Pension tax at 5.5%, ages 55–69 (won) | 495,000 | 495,000 |
| Net saving (won) | 990,000 | 693,000 |
| Net saving rate on contribution (%) | 11.0 | 7.7 |
| Pension tax at 3.3%, age 80+ (won) | 297,000 | 297,000 |
| Net saving in that case (won) | 1,188,000 | 891,000 |
| Net saving rate (%) | 13.2 | 9.9 |
Two readings follow. In the 16.5% band, drawing from 55 pulls the net rate down to 11.0% — 5.5 points below the headline figure. In the 13.2% band, early drawdown takes it to 7.7%. What keeps the arithmetic favourable is not the rate gap but the timing gap: the refund arrives in February of the following year while the tax leaves two or three decades later, and the principal compounds untaxed in between.
The pension tax credit does not cut your tax bill. It moves the date. How much you actually keep is set by the length of the delay, not the size of the credit rate.
Deferral covers more than principal. Dividends, interest, and capital gains inside the account go untaxed until withdrawal, where an ordinary account would withhold 15.4% on dividends and interest every year. For severance rolled into an IRP, pension-form withdrawal cuts the retirement income tax by 30%, rising to 40% from the eleventh year of receipt. The severance tax structure itself is covered separately in a calculation of how years of service drive retirement income tax.
Cancelling early claws the refund back
Take the money out in any form other than a pension and credited contributions plus gains are hit with 16.5% other-income tax. That number matters because it exactly matches the credit rate in the sub-55-million band: contribute 9 million won, collect 1,485,000 won, cancel, and 1,485,000 won goes back out. Gains face the same rate, so any profit turns the whole thing into a loss.
| Item | 16.5% band | 13.2% band |
|---|---|---|
| Refund received on 9M won (won) | 1,485,000 | 1,188,000 |
| 16.5% other-income tax on principal (won) | 1,485,000 | 1,485,000 |
| Net on principal (won) | 0 | -297,000 |
In the 13.2% band you hand back more than you received, because the credit was 13.2% but cancellation is taxed at a flat 16.5%. Worth settling before parking money you may need, and if the horizon is under five years, compare the ISA route first — rolling a matured ISA into a pension account earns an extra credit of 10% of the transferred amount, capped at 3 million won. The account-type constraints are laid out in this comparison of ISA types.
The 15 million won line changes everything
The 3.3–5.5% rate is conditional. It applies only while total private pension receipts stay at or below 15 million won a year; above that, the whole amount goes to whichever is better — aggregate taxation or 16.5% separate taxation. Private pension here means credited contributions and gains from the savings account and IRP combined; the national pension and rolled-over severance are counted separately.
That line is 1.25 million won a month. Twenty years at 9 million won is 180 million won of principal alone, so a ten-year drawdown clears 18 million a year and breaches the line on principal alone. Stretch the same pot over twenty years and it falls back under 9 million. Contributions fix the credit; the number of years you spread the drawdown over fixes the actual rate.
What to watch
- Which income figure applies — check gross salary on the withholding receipt against 55 million won, then re-check against aggregate income of 45 million if you have business income
- The deposit deadline — credits follow the actual deposit date; the money must be in the account by 31 December
- How the lock is split — the larger the IRP share of the 9 million, the more you cannot touch without a statutory reason
- The IRP 70% ceiling — orders breaching it simply will not fill, so check remaining headroom before a year-end contribution
- Drawdown design — calculate whether annual receipts clear 15 million won, and whether stretching the years can bring it back under
- The 16.5% cancellation rate — in the 13.2% band, cancelling is a net loss, and that belongs in the decision before you contribute