[The Editors' Verdict] The Blind Spot of the 300 Trillion Won Retirement Pension

[Asia Economy Reporter Jeon Pil-su] It is said that the accumulated retirement pension funds are approaching 300 trillion won. At the end of last year, it was 295.6 trillion won, so it must have exceeded 300 trillion won by now. The increase in retirement pension funds last year was 40.1 trillion won. Among pension funds, it is the second largest after the National Pension Service, which surpassed 900 trillion won in January this year, and it is said that by 2040, it will surpass the size of the National Pension Service.

The retirement pension system is a system where the company entrusts the retirement pay it must pay to a financial company instead of paying it directly, and operates it according to the instructions of the company or the employee, paying the employee a lump sum or pension upon retirement. Simply put, it ensures that employees can receive their retirement pay stably even if the company goes bankrupt.

It started in December 2015, and from the employee’s perspective, since there is no risk of losing retirement pay, it is a system to be welcomed with open arms. The government has also actively encouraged enrollment, so in just over six years, it has grown into a mammoth-sized fund worth 300 trillion won. Although the low returns (2% as of 2021), which do not even keep up with inflation, are a problem, the proportion of performance-based plans with higher returns is increasing, so this aspect is expected to improve gradually. As of last year, the return on performance-based plans was 6.42%, while the principal-guaranteed plans yielded 1.35%, with 86.4% of the total accumulated funds in principal-guaranteed plans.

The real problem is that the majority of workers in companies with fewer than 30 employees, who need this system the most, have not yet enrolled in the retirement pension. As of the end of last year, the enrollment rate for retirement pensions in workplaces with fewer than 30 employees was only 24%. In contrast, the enrollment rate was 77.9% for workplaces with 30 to 299 employees, and 90.8% for workplaces with 300 or more employees.

The reason why smaller companies have lower retirement pension enrollment rates is clear: they lack financial resources. In other words, the probability that they cannot settle retirement pay on time is also higher. Considering the purpose of the system to ensure stable receipt of retirement pay, priority should have been given to encouraging retirement pension enrollment in workplaces with fewer than 30 employees.

Belatedly, the Ministry of Employment and Labor and the Korea Workers' Compensation and Welfare Service held the Small and Medium Enterprise Retirement Pension Fund Launch Ceremony (on the 14th) and began supporting small-scale workplaces. For three years, they will provide financial support covering 10% of the employer’s contribution for workers in small companies earning less than 2.3 million won per month on average, and set the lowest level of fees (below 0.2%). Through this, they plan to raise the retirement pension enrollment rate in workplaces with fewer than 30 employees to 44% within 10 years.

Although this is not an easy goal, it is still insufficient. South Korea’s elderly poverty rate was 40.4% in 2020, ranking first among OECD countries. The OECD average is 13.1%. This is inevitable because the majority of Korean workers belong to small and medium-sized enterprises. As of 2019, among approximately 18.74 million workers in South Korea, about 10.44 million worked in workplaces with fewer than 30 employees, accounting for 56% of the total. Expanding the scope to workplaces with fewer than 300 employees, 85% of all workers are employed by SMEs. Since the majority are disadvantaged even in the retirement pension system due to relatively low wages, many end up poor after retirement.

In the UK, the department in charge of retirement pensions is the Department for Work and Pensions. A deputy minister-level official is responsible for retirement pensions. In Korea, the department in charge is the Retirement Pension Welfare Division of the Ministry of Employment and Labor. It is managed by a single division, not even a bureau or office. Stronger support measures and enforcement powers are needed. The market logic that it is fair to receive benefits proportional to contributions cannot free Korea from elderly poverty. As the proverb goes, “Poverty cannot be saved even by the country,” polarization should not be dismissed as an inevitable issue.

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