While all employees are entitled to severance pay, it's not widely known that under certain conditions, a portion of the severance pay can be received in advance before actually retiring. This is called an "interim settlement of retirement benefits," and it is only available when specific requirements are met. In this article, we will clearly explain how the interim settlement works for both severance pay and retirement pensions.
Table of Contents
- What is Interim Settlement of Retirement Benefits?
- Eligible Reasons for Severance Pay Settlement
- Early Withdrawal from Retirement Pension
- Important Notes When Applying for Settlement
1. What is Interim Settlement of Retirement Benefits?
Interim settlement of retirement benefits is a system that allows employees to receive a portion of their severance pay or retirement pension before they actually retire. However, this cannot be granted simply upon request; it must meet specific legal requirements. Also, whether this system is available depends on the company’s policy, so it is crucial to confirm in advance with your employer.
2. Eligible Reasons for Severance Pay Settlement
While severance pay is generally paid upon retirement, interim settlements are permitted under the following circumstances:
- Purchasing a home without prior ownership
When an employee purchases a home under their own name, an application can be made based on the contract date. - Payment for housing such as lease deposit
Tenants without a house can also apply for an interim settlement if they pay a deposit (jeonse). - Medical care of the employee or a dependent for more than 6 months
If medical expenses due to long-term treatment exceed a certain percentage of the annual salary, an application can be submitted. - Reduction in salary due to implementation of the wage peak system
- Damage due to disaster
In cases of home destruction, missing persons, or long-term hospitalization - Personal bankruptcy or commencement of rehabilitation procedures
Supporting documents such as sales contracts, medical certificates, or resident registrations must be submitted when applying. If the timing is missed, the application may be rejected.
3. Early Withdrawal from Retirement Pension
Employees who are enrolled in a retirement pension plan can make a partial withdrawal of their pension savings through what’s called “early withdrawal.” The reasons allowed are very similar to those for severance pay interim settlement and include the following:
- Purchasing a home or paying a lease deposit
- Long-term care or significant medical expenses
- Damage from natural disasters
- Personal bankruptcy or rehabilitation
- Reduced wages due to wage peak system
However, the availability of early withdrawal depends on the type of pension plan (DB, DC, IRP, etc.) and its specific regulations. Be sure to check with your provider in advance.
4. Important Notes When Applying for Settlement
- Employer's consent is required
Since the employer can reject the request, make sure to confirm approval in advance. - One-time application
You can’t apply again for the same reason, and severance pay is calculated only for the remaining service period. - Apply within the allowed timeframe
You must apply within one month of the due date for lease payment or end of medical care, etc. - Consider tax implications
The settled amount may be subject to tax, so review the tax rules carefully.
Conclusion
The interim settlement of retirement benefits can ease temporary financial burdens. However, since the conditions are strict and require the employer’s approval, it’s important to understand the details before applying. Also, keep in mind that this is essentially using your future benefit in advance, so consider it carefully.
