Abstract

To face the aging society, the income security after retirement is considered more important thanin the past. The income security for one’s later years should be provided at personal level as wellas at the national level through a variety of methods of the pension system. Through the nationalpension scheme at the national level, the retirement pension scheme at the commercial level, andthe personal savings pension at individual level, a three－layer security system is built. and thepersonal portable pension system called the Individual Retirement Pension (‘IRP’ hereinafter) isprepared for those with high employee turnover. Although the three－layer pension system isprovided by the government, in case of having other income source, receiving a lump sum isconsidered favourable than a pension due to the fact that the current taxation applied on pensionincome included in comprehensive income tax creates relatively unfavourable tax burden comparedto retirement income tax. In case of receiving a lump sum, it is classified as retirement incometax whereas receiving a pension is taxed as comprehensive income；because the pension incometax is imposed on the combined pension income, the tax burden resulted in comprehensive incometax is relatively heavy compared to the retirement income tax. Therefore, a retiree receivingseveral different pensions has the incentive to choose to receive a lump sum for some of pensionsrather than receive them all as pensions. This can be contrary to the government policy that is setto secure the income after the retirement through a three－layer pension system. On the basis of such issues, this study, through a unified view of the national pension scheme,the retirement pension scheme, and the personal savings pension, states the need of strong taxincentives on the pension income, and also suggests improvements for selecting a pension by pointingout problems of current pension income tax system. The pension scheme needs to be designed toachieve its original purpose by providing broader tax incentives from the initial subscription to thefinal receipt. In this study, it suggests the need to strengthen the incentives of the pension in orderto secure income after retirement In other words, it attempts to prevent the exhaustion of the pensionin a way of receiving lump sum in advance by providing a way in which receiving a pension islikely to be selected. To this end, this study, by the way of categorizing each phases in the subscription likely to be selected. To this end, this study, by the way of categorizing each phases in the subscriptionphase, operational phase, and receiving phase, attempts to present problems and solutions for eachphases. As alternatives to the results, those are increasing the limit of tax credit in the subscriptionphase to attract the subscription of pension, imposing heavy penalties in the operational phase toavoid termination, and providing favourable tax incentives in the receiving phase to place separatetaxation if possible. In addition, it also considered that, for those pension incomes taxed incomprehensive income tax are to be exempted, or to seek a way to classify and treat themseparately. Through those measures, there is much likelihood to reduce the incentive to choose alump sum, yet to increase the incentive to choose a pension. The purpose of this study was to provide a substantive tax incentives (incentive) through acomprehensive review of the national pension scheme, the retirement pension scheme, and thepersonal savings pension. Therefore, this study, in a way of considering improvements of taxincentives on the pension system based on the comprehensive review of the national pensionscheme and the personal savings pension to promote the selection of pension in an aging society,can be said significant.

Keywords

• the national pension scheme
• the retirement pension scheme
• the personal savings pension
• pension savings
• pension income tax
• pension taxation
• retirement income tax

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