Starting at 25 Gives You a 110 Million Won Edge Over Starting at 35

For low-income earners in their 20s, the answer is clear: filling up a pension savings fund first pays off.

Assuming a 5% annual return, contributing 300,000 won a month starting at age 25 accumulates roughly 250 million won by age 55. Starting at 35 leaves you with only about 140 million won. The difference in principal contributed during the first 10 years is 36 million won, yet the final asset gap exceeds three times that — roughly 110 million won. In lower income brackets where tax deductions offer little tangible benefit, what decides the outcome is not tax savings but time, compounding, and investment flexibility.

Why the Starting Point Makes a 110 Million Won Difference

Monthly 300,000 Won, 30-Year Compound Simulation

Those who start at 25 secure a 30-year compounding runway through age 55. The total principal — 108 million won — is identical in both cases, but 10 extra years of returns compounding creates a gap of roughly 110 million won over those who start at 35. This is why, in long-term dollar-cost-averaging, consistency and the starting point matter more than market timing.

When Income Is Low, Tax Credits Are Not the Deciding Factor

Tax credits work by refunding taxes you have already paid. With annual earned income of 5.5 million won or less, you owe no taxes at all, so the benefit is essentially nonexistent — and even at around 20 million won in annual income, the actual tax paid is so small that the credit offers limited value. The 16.5% deduction rate for those with total annual pay of 55 million won or less is a benefit you can only enjoy if you have income.

For low-income people in their 20s, the real value of both products therefore lies in tax deferral on investment gains and the low 3.2–5.5% tax rate upon withdrawal. Both the pension savings fund and the IRP offer these equally. The differences come down to investment flexibility, fees, and liquidity.

Structural Comparison: Pension Savings Offers Freedom, IRP Imposes Limits

Up to 100% Equities vs. a 70% Cap on Risky Assets

A pension savings fund can be allocated 100% to equity funds and ETFs. An IRP caps risky assets at 70%, with the remainder required in deposits, MMFs, and the like. For those in their 20s with 30-plus-year investment horizons, the equity cap is a structural constraint that directly lowers the ceiling on long-term returns.

Administrative Fees Quietly Eat Into Returns

IRPs carry an additional administrative fee of 0.26–0.9% per year on top of management fees. Brokerage IRPs are relatively cheap at around 0.26–0.4% annually, while bank IRPs cost about 0.9%. On a 5% expected annual return, a 0.5-percentage-point fee difference compounds over 30 years into tens of millions of won in lost final assets. Index funds in pension savings accounts, with management fees of 0.2–0.6%, hold a clear comparative advantage.

Liquidity and regulatory changes also deserve attention

Early Withdrawals: A Safety Net for People in Their 20s

For those in their 20s, who often face unexpected cash needs, the ability to withdraw early from a pension savings fund is a real safety net — though withdrawals incur tax (16.5% or 22% as other income tax). An IRP, by contrast, permits withdrawals only for six specified reasons, such as housing or medical expenses. Still, since pension savings withdrawals are also taxed, it is important to treat the money as untouchable until age 55 when opening the account.

With mandatory enrollment scrapped, the IRP is now optional

In the past, those contributing more than 3 million won to a pension savings fund were required to open an IRP, but that rule has been abolished. The combined tax-deduction limit for pension savings funds and IRPs is 9 million won per year, so the standard approach is to max out the 6-million-won pension savings limit first, then use the remaining 3 million won for an IRP. The only exception is severance pay recipients: severance can only be received into an IRP, and holding it for 10 years or more and withdrawing after age 55 brings retirement income tax relief — in that case, the IRP comes first.

A Practical Three-Step Strategy

Step 1 — Build an Emergency Fund, Then Open a Pension Savings Fund

First secure three to six months of living expenses in a CMA or parking account. Then open a pension savings fund at a brokerage and maximize equity exposure with low-cost index funds and ETFs. Even starting with 30,000–50,000 won a month via automatic transfer is meaningful. Setting up the auto-transfer on payday is key.

Step 2 — Adjust Contributions Before December Once You Owe Taxes

Check your tax liability before year-end tax settlement season, and if the 16.5% credit offers real benefit, increase contributions within the limit. As income rises, fill the 6-million-won pension savings limit first, then the remaining 3 million won in an IRP. Those aged 19–34 earning 75 million won or less a year should also consider the Youth Leap Account, which offers tax-free gains and up to a 5.5% tax credit for monthly contributions of 400,000–700,000 won depending on income bracket.

Step 3 — Consolidate Your Accounts at One Firm Among the Top Five

Consolidating accounts at your main bank or brokerage also simplifies management and strengthens your negotiating position for loans, including track record for products like small-business or housing deposit loans. When opening an IRP, compare brokerages for low fees and avoid bank IRPs.

Caveats and Outlook

The combined annual contribution limit for both accounts is 50 million won. The 3.2–5.5% withdrawal tax rate could change with future tax law revisions — in particular, given discussions of pension income tax hikes, check the latest information from the National Tax Service and Financial Supervisory Service before signing up. The low tax rate applies only if you receive tax-deducted principal and investment gains as a pension after age 55; early termination incurs a 22% other income tax.

In summary, a sensible strategy for low-income earners in their 20s is to contribute steadily in small amounts to an index-based pension savings fund, then add an IRP once income rises to a taxable level. With annual income of 5.5 million won or less, the structural advantages of 100% equity allocation and low fees remain fully intact even without any tax credit benefit — so there is no reason to put off starting.