A committee on overhauling of the national pension holds a public hearing at the Korea Chamber of Commerce and Industry Building in Seoul on Aug. 17. (Photos: NPS)

Chairman Kim Sung-joo of National Pension Service(NPS).

Korea’s national pension is to be exhausted in 2057, three years earlier than anticipated. The fund is expected to post a shortfall in 2042, two years earlier than anticipated.

 
A committee on the national pension held a public hearing at the Korea Chamber of Commerce and Industry Building in Seoul on Aug. 17 in which two options were suggested. The fund was to be depleted in 2060 according to an estimate made five years ago. According to the latest estimation, the earlier depletion and shortfall are due to three woes the nation is facing — low birth rate, aging society and low growth rate.

Influenced by the low birth rate, the number of pension subscribers is on the decline, while pensioners are on the rise. Currently, pensioners account for 16.8 percent of pension subscribers, but pensioners will outnumber subscribes in 2054, and the pensioner vs. subscriber rate will soar to 124.1 percent in 2068.

To make matters worse, a drop in the economically active population will exacerbate the fund’s financial situation.
The committee forecasts that the year in which pension deposits will peak will be advanced from 2043 to 2041 and peak deposits will decline from 2,561 trillion won to 1,778 trillion won.

The number of subscribers to the pension will peak at 21.8 million next year, and fall on a gradual basis due to a decline in the economically active population. In 2088, the number is predicted to stand at only 10.1 million. The latest estimation is based on the forecast that the nation’s average life expectance will reach 90.8 for men and 93.4 for women in 2088.

To stabilize the management of the public fund for the next 70 years, the committee suggested two options. The first option is to shoulder higher premiums and more monthly payments. The second is to shoulder higher premiums and delay the age of eligibility to receive the pension.

The first option calls for the income replacement rate to be maintained at the current level of 45 percent. The National Pension Act stipulates that the income replacement rate will be lowered to 40 percent by 2028. The move is designed to increase the amount of monthly pension payments so as not to be lowered to unsustainable levels. In return, the option calls for an increase of the premium rate from the current 9 percent to 11 percent from next year, and retaining the rate for 15 years before raising it again to 12.31 percent of their income in 2034.

The second option calls for retaining the income replacement rate as stipulated by the National Pension Act — lowering 0.5 percentage points each year from the current 45 percent, but raising the premium rate from the current 9 percent to 13.5 percent, up 0.45 percentage points each year for the next 10 years. The option also calls for delaying the age of eligibility to receive the pension to 66 in 2038 and 67 in 2043 on a gradual basis. The committee also suggested the obligatory aged of subscribing with the fund from current 60 to 66.

Comprehensively taking into account the committee’s two options and President Moon Jae-in’s public campaign pledge to raise the income replacement rate to 50 percent, the Ministry of Health and Welfare will work out a final plan and submit it to the National Assembly to obtain approval by October.
The government plans to draft a plan to overhaul the fund with an option to raising the mount of monthly pension payments rather than only focusing on raising premium rates in the past, a ministry official said.