"Urgent Need to Strengthen the Role of Private Pensions for the Elderly in a Super-Aged Society"

Source: Korea Insurance Research Institute

[Asia Economy Reporter Changhwan Lee] In South Korea, which is entering a super-aged society, there is a growing call to rapidly strengthen the role of private pensions to prepare for the elderly population.

On the 3rd, the Korea Insurance Research Institute released a report titled "Longevity in an Aging Society, Preparation and Cooperation: Policy Directions for Private Pensions," stating that as South Korea rapidly progresses into a super-aged society, it is facing an expansion of public welfare finances and deterioration of pension finances before a social safety net is even established, making it inevitable to strengthen the role of private pensions to complement these issues.

The National Pension Service, the representative public pension, has a wide blind spot due to exemption from contributions and delinquencies, and the actual income replacement rate is low at 20.9% (2021).

The institute pointed out that the National Pension contribution rate is 9%, and the statutory income replacement rate is 40%, resulting in ongoing financial instability due to a low-contribution, high-benefit system.

Source: Korea Insurance Research Institute

On the other hand, private pensions that can supplement public pensions have low participation rates among vulnerable groups, and retirement pensions are mostly canceled during job transitions, with lump-sum withdrawals weakening the function of securing retirement income, in addition to low levels of tax support.

As of 2020, the individual pension participation rate was 50.1% for those earning over 80 million KRW, but only 0.1% for those earning less than 20 million KRW. The participation rate in retirement pensions for workers is 69.1% in workplaces with 300 or more employees, but only 11.9% in workplaces with fewer than 5 employees.

Moreover, retirement pensions tend to be canceled immediately after being transferred to individual retirement pension (IRP) accounts during job changes, as they can be freely canceled.

Government support measures for revitalizing private pensions, such as tax benefits, are not substantial, and their function to encourage enrollment and pension conversion is minimal.

Ultimately, there is a call for the government to actively strengthen private pensions.

Kang Seongho, Senior Research Fellow at the Korea Insurance Research Institute, emphasized, "It is necessary to establish standards for adequate retirement income security between public and private pensions and to build an integrated pension control tower so that private pensions can strengthen the social safety net function. Tax benefits should be raised to the level of OECD countries, and differentiated tax benefits should be provided considering subscriber characteristics such as income level, age, and subscription period."

He added, "The retirement allowance system should be unified into a retirement pension system, with benefits paid in pension form, and it is necessary to improve retention rates by strengthening institutional continuity to prevent cancellations caused by job changes."

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