“Should I open Pension Savings or IRP?” is one of the most common questions for Korean employees. The standard answer is “both” — but few people know exactly why. This guide breaks down the real differences for an employee.
Compare refunds in the Year-End Tax Calculator →
One-line summary
- Fill Pension Savings to ₩6M first → top up IRP with ₩3M is the standard answer
- Combined ₩9M cap × 13.2~16.5% credit = up to ₩1.485M refund
- The real difference between the two isn't the tax credit — it's eligibility, early withdrawal, and investable assets
Tax credit comparison — effectively identical
| Item | Pension Savings | IRP |
|---|---|---|
| Solo cap | ₩6M/yr | ₩9M/yr |
| Combined cap | ₩9M total | ₩9M total |
| Credit rate (gross ≤ ₩55M) | 16.5% | 16.5% |
| Credit rate (gross > ₩55M) | 13.2% | 13.2% |
| Max tax credit | ₩6M × 16.5% = ₩990K | ₩9M × 16.5% = ₩1.485M |
Key: IRP's solo cap is higher (₩9M), so filling only Pension Savings to ₩6M caps you at ₩990K — you need to add ₩3M to IRP for the extra ₩495K (at 16.5%).
So why both? — 5 actual differences
1. Eligibility
- Pension Savings: Anyone (no income or job requirement)
- IRP: Only those with income (employees, self-employed, civil servants). Homemakers / unemployed can't open one.
Homemakers can only operate Pension Savings. Only employees and self-employed can use both to fill the combined ₩9M cap.
2. Early withdrawal
- Pension Savings: Partial withdrawal allowed freely (with tax penalty). Withdrawing credit-eligible principal + earnings triggers 16.5% other-income tax
- IRP: No early withdrawal in principle. Exceptions only (first home purchase, 6+ month medical care, natural disaster, bankruptcy)
→ Pension Savings is much more flexible. Money in IRP is effectively locked until age 55.
3. Investable assets
- Pension Savings: Funds, ETFs, deposits all allowed. Direct stock trading at some brokerages
- IRP: Funds, ETFs, deposits + risk-asset (stock / equity fund) cap of 70%
IRP requires 30% safe-asset minimum, so you can't go 100% stock ETF. Pension Savings lets you go 100% equity (at brokerage accounts).
→ For aggressive long-term growth, Pension Savings wins. IRP's forced 30% in safe assets (deposits, bond funds) drags long-term returns.
4. Fees
- Pension Savings (brokerage): 0% (only trade commissions)
- IRP: 0.2~0.4% annual management fee (varies by bank/broker/insurer)
Over 30 years, IRP's 0.3% fee compounds to roughly 8~9% of cumulative assets. Not trivial. → Pension Savings wins on fees too.
5. Withdrawal mechanics
- Pension Savings: Pension from age 55 (min 5-year split). 3.3~5.5% pension income tax
- IRP: Pension from age 55 (min 10-year split). 3.3~5.5% pension income tax
- Non-pension withdrawal: Both hit with 16.5% other-income tax
Pension income tax is dramatically lower than regular income tax (6~45% progressive). Withdrawing as a pension in retirement is a major tax saver. Note IRP requires 5 more years of splitting.
Real-world deposit order
For Korean employees, recommended deposit order:
- Fill Pension Savings to ₩6M (full cap) — flexibility, fees, asset freedom all favor it
- Add ₩3M to IRP — hit the combined ₩9M cap → max tax credit
- (If extra cash) Roll ISA into IRP at maturity → extra ₩3M credit (separate)
This gives ₩1.485M (low income) or ₩1.188M (high income) refund + ISA-rollover extra ₩495K/₩396K.
FAQ
Q. Pension Savings at insurer, bank, or broker? A. Brokerage (Mirae Asset, Samsung, KB) is overwhelmingly better. Insurance-based Pension Savings deducts 7~10% in commissions annually, killing long-term returns. Bank trust products have limited investment options. Brokerage Pension Savings fund or account with ETF purchase is the standard.
Q. Where to open IRP? A. If your company's retirement pension is at a specific bank/broker, you can open a personal IRP there. Or open IRP at a different institution regardless of company plan. Choose lowest fees (usually brokerages).
Q. Can I put 100% US S&P 500 ETF in Pension Savings? A. Yes. Brokerage Pension Savings fund accounts can buy KODEX 미국S&P500, TIGER 미국S&P500, ACE 미국S&P500 — Korea-listed US ETFs. IRP caps risk assets at 70%, so you can only go 70%.
Q. Worth starting if I can't fill the ₩6M cap? A. Yes. Within the credit limit, ₩10K deposit = ₩1,650 refund (16.5%) — instant 16.5% return. No regular product guarantees 16.5% in a year. Starting with ₩100K/month = ₩16,500 annual refund. The intent must stay "retirement money" though.
Q. Company's severance went into my IRP — can I still add to it? A. Yes. Company severance in your IRP doesn't affect the cap; your personal additions still count for credit (up to ₩9M minus Pension Savings deposit). The company severance portion itself isn't credit-eligible.
Summary
| Situation | Recommendation |
|---|---|
| Employee (has income) | Pension Savings ₩6M → IRP ₩3M (combined ₩9M) |
| Homemaker / unemployed | Pension Savings ₩6M (IRP not allowed) |
| Not 100% sure about retirement | Lean Pension Savings (flexibility) |
| Salary ≤ ₩55M | Same deposit, 16.5% credit → ₩1.485M refund if maxed |
Simulate IRP top-up in the Year-End Tax Calculator → — see exactly how much your refund grows based on your salary and current deposit.
Related tools
- Year-End Tax Calculator — IRP top-up simulation chart
- Compound Calculator — what does IRP grow to over 30 years?
- ISA Calculator — extra credit when rolling ISA into IRP