[Exclusive] "Attracting Regional Talent"... Ministry of SMEs and Startups to Promote Additional Government Subsidies for Preferential Savings Deduction

Government Considers Matching Subsidies for Provincial SME Employees
Benefits to Differ Between Capital and Non-Capital Region Workers
A Policy Move to Address Talent Outflow and Regional Extinction Risks

The government is pursuing a plan to provide additional government subsidies to the "Preferential Savings Deduction for Employees of Small and Medium-sized Enterprises (Preferential Savings Deduction)" in order to address the concentration of jobs in the Seoul metropolitan area and the risk of regional extinction in the provinces.

The beneficiaries are employees of small and medium-sized enterprises (SMEs) located in non-capital regions. Currently, the accumulation structure only adds company support funds to the employees' own contributions, but the proposed change would have the central or local government provide an additional matching subsidy at a set percentage. However, instead of covering all local companies, the government is expected to prioritize those located in regions facing significant risks of depopulation and workforce outflow, where concerns about regional extinction are especially high.

According to the government as of June 12, the Ministry of SMEs and Startups is reviewing this plan and is in discussions with the Ministry of Economy and Finance.

The Preferential Savings Deduction is a public-private cooperative financial product introduced in October 2024 by the Ministry of SMEs and Startups and the Korea SMEs and Startups Agency to support the inflow and long-term retention of talent in SMEs and help them build assets. SME employees can join by choosing an amount between 100,000 and 500,000 won per month, with the company then contributing an additional 20% of the employee’s payment and a preferential bank interest rate applied to help them accumulate a lump sum. The government has so far provided tax relief and expense deductions for the company contributions.

The proposed revision centers on the government directly providing subsidies in addition to tax benefits. The government subsidy rate and the method of splitting the funding responsibilities are currently under discussion.

Under the current accumulation structure, if an employee chooses a five-year plan and pays 500,000 won per month, the total employee contribution would be 30 million won. If the company provides 20% of this amount (100,000 won per month, totaling 6 million won), the combined balance would reach 36 million won. Upon maturity, including interest, the employee would receive a total of 39.8 million won.

If the central and local governments each add 10% of the employee's monthly contribution (50,000 won per month each), an additional 6 million won in government subsidies would be accumulated over five years. In this case, the total matching rate would expand to 40% when combining the company (20%) and government (20%) contributions, and the total balance would increase to 42 million won. The expected payout at maturity, including interest, is estimated to be around 46 million won. This structure would mean that, for the same period and the same monthly payments, employees at SMEs in the provinces would receive greater benefits than those working in the Seoul metropolitan area.

The Ministry of SMEs and Startups has introduced this fiscal matching plan in response to the deepening concentration of jobs in the capital region and growing fears of regional extinction. The cycle of a "low-skill trap" is repeating, as talented workers leave due to low wages and poor working conditions at provincial SMEs, and these companies are unable to innovate because of ongoing labor shortages. According to a survey by the Korea Enterprises Federation, 64% of local governments outside the capital region anticipate that the risks of population decline and regional extinction will be even higher five years from now than they are today.

This content was produced with the assistance of AI translation services.