"If the National Pension Continues Like This, People Born in the 1990s May Not Receive It"

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[Asia Economy Reporter Jeong Hyunjin] Although South Korea is aging faster than the major five countries (G5) and the issue of elderly poverty is worsening, there are claims that the pension system guaranteeing retirement income is inadequate and needs reform. It is analyzed that if the National Pension, which has continuously faced fiscal stability issues, continues to operate under the current system, those born in the 1990s may not receive any pension benefits about 30 years from now.

The Korea Economic Research Institute under the Federation of Korean Industries compared the aging status and pension systems of South Korea, the United States, Japan, the United Kingdom, Germany, and France, the G5, on the 13th, stating, "If pension reform is not implemented immediately, a huge tax burden will be passed on to future generations."

According to an analysis of OECD statistics and data from Statistics Korea, South Korea's elderly poverty rate was 40.4% in 2020, ranking first among 37 OECD countries surveyed, and about three times the G5 average (14.4%). Although the proportion of the population aged 65 and over in South Korea was 17.3% in 2022, lower than the G5, it is expected to surpass the U.S. (18.9%) in 2025 to enter a super-aged society, and by 2045, it is projected to exceed Japan (36.8%), the world leader, reaching 37.0%.

The Korea Economic Research Institute points out that although South Korea is aging rapidly, public and private pensions guaranteeing retirement income are grossly insufficient. Comparing the main sources of retirement income, South Korea's share of public transfer income such as the National Pension and Basic Pension was 25.9%, much lower than the G5 average of 56.1%. Additionally, the complementary function of private transfer income, such as private pensions or capital income (22.1%), to public pensions was also weak. As a result, South Korea relied on earned income for more than half (52.0%) of retirement income.

The income replacement rate of public and private pensions, which indicates the pension payment level relative to pre-retirement average income, was 35.4% in South Korea in 2020, nearly 20 percentage points lower than the G5 average of 54.9%.

The Korea Economic Research Institute expressed concern that South Korea's public pension system operates with lower contributions and earlier benefits compared to the G5. South Korea plans to raise the pension eligibility age from the current 62 to 65 by 2033, but this is still lower than the G5, which plans to raise it from 65-67 to 67-75. Also, South Korea's contribution rate is 9.0%, less than half of the G5 average of 20.2%, and the required contribution period to receive the maximum basic pension (full pension) is 20 years, more than 10 years shorter than the G5 average of 31.6 years.

Quoting the National Assembly Budget Office, the Korea Economic Research Institute stated that the National Pension's financial balance is expected to turn into a deficit in 2039 and reserves will be depleted by 2055, explaining, "If the current National Pension system is maintained, those born in 1990, who will become eligible for pension benefits in 2055, may not receive any pension at all." Particularly, the number of pension recipients supported per 100 contributors is expected to surge about fivefold from 19.4 in 2020 to 93.1 in 2050. The Korea Economic Research Institute warned, "If the National Pension continues to be paid, future generations will face excessive burdens due to a sharp increase in contribution rates."

Looking at the private pension system, the proportion of private pension subscribers among the population aged 15-64 in South Korea was 17.0%, below the G5 average of 55.4%. The Korea Economic Research Institute explained, "South Korea's tax support rate for private pensions is 19.7%, lower than the G5 average of 29.0%, indicating a lack of incentives for private pensions, resulting in low subscription rates."

Choo Kwang-ho, head of economic policy at the Korea Economic Research Institute, said, "With the rapid increase in the dependency ratio of the National Pension system and the prospect of fund depletion, the burden of elderly support on future generations is expected to be enormous, yet discussions on pension reform are being postponed." He added, "To secure a retirement income base in a super-aged society, urgent measures such as National Pension reform and expansion of tax support to activate private pensions are needed."

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