Workers Facing COVID-19 Crisis Can Access Retirement Pension Collateral Loans

Partial Early Withdrawal Within Half of Accumulated Points for Unavoidable Reasons

The photo shows citizens waiting to receive consultations for unemployment benefits applications and employment support. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Moon Chaeseok] Workers facing economic difficulties due to the impact of the novel coronavirus infection (COVID-19) will be able to take out loans using their retirement pensions as collateral. In unavoidable circumstances, partial early withdrawal of retirement pensions will also be possible.

According to related ministries on the 7th, the Ministry of Employment and Labor and the Financial Services Commission have decided to pursue revising various regulations, including the Enforcement Decree of the Employee Retirement Benefit Security Act, as one of the financial policy tasks for the second half of the year.

The key point is to open the way for workers whose livelihoods have been hit by COVID-19 to obtain loans using their retirement pensions as collateral.

This may apply to cases where the worker, their spouse, or dependents have been diagnosed with COVID-19 or quarantined, resulting in a sharp decline in income. It also includes cases where companies have reduced working hours, implemented unpaid leave, or temporary layoffs to endure the demand contraction caused by COVID-19.

The current Enforcement Decree of the Employee Retirement Benefit Security Act strictly limits workers from taking loans using their retirement pensions as collateral.

Collateral loans on retirement pensions are only allowed in cases such as home purchase or jeonse deposit for the homeless, nursing care for more than six months, bankruptcy declaration or rehabilitation procedures, and "other natural disasters."

Infectious diseases like COVID-19 are not eligible for collateral loans because they are considered social disasters and do not fall under the category of other natural disasters.

The government is working on a plan to interpret the scope of other natural disasters more flexibly to include social disasters such as infectious diseases.

However, even if collateral loans are permitted, the collateral will be limited to 50% of the retirement pension reserves to prevent the unfortunate loss of workers' retirement assets.

Measures to encourage retirement pension providers to activate related products are also being considered. This is to support workers in obtaining loans under the most favorable conditions possible.

The government is also pursuing a plan to recognize COVID-19 as a reason for early withdrawal of retirement pensions.

The government plans to start the process of revising the enforcement decree soon. However, since basic procedures such as public notice are required, it is expected to take about three months until actual implementation.

As of the end of last year, the scale of retirement pension reserves was 221.2 trillion won. It has been rapidly increasing, growing by 31.2 trillion won in just last year alone.