Posted August. 08, 2005 03:04,
Under the new retirement pension plan to be introduced this December, the amount that employee pays is entitled to an income deduction.
In addition, the deduction limit for retirement and individual pensions will rise to higher than the current 2.4 million won.
The Ministry of Finance and Economy (MOFE) announced on August 7 that it decided to submit revised legislation of a tax regulation act in September to the regular session of the National Assembly.
Defined contribution (DC) pension plans, in which the employer pays a certain amount of annual salaries for retirement accounts in addition to employees individual payments, are income-deductible.
On the other hand, defined benefit (DB) plans, or employer-sponsored retirement schemes, are not deductible as employees do not make contributions.
The deduction ceiling is defined by the paid-up total of retirement and private pensions.
For example, A, who currently pays 200,000 won every month for his private pension plan, has his 2.4 million exempted from income taxation. This is because individual retirement plans also have limits to income deduction.
Starting next year, if A pays a monthly 100,000 won for a retirement pension plan as well, his or her paid-up sum will increase to a total of 3.6 million won. Under the current deduction ceiling of 2.4 million won, the remaining 1.2 million won is not deductible from taxable income, which will be different.
In practice, most individuals pay some 100,000 won every month for private pension plans and are not likely to contribute more to retirement pension schemes, so the government need not raise the deduction ceiling greatly from the current level (annual 2.4 million won).
The MOFE, however, explains that the limit should be revised upward for employees who received deductions only for private pensions. One MOFE official said, We plan to determine the ceiling by the end of this month.