"Higher Income and Financial Literacy Linked to Increased Personal Pension Enrollment Rates"

[Asia Economy Reporter Changhwan Lee] It has been found that the higher the income level and financial literacy, the higher the rate of personal pension subscription. There are also claims that the personal pension market should be expanded to solve the problem of elderly poverty.

According to the paper titled "The Relationship between Financial Literacy, Residence, and Subscription to Personal Pensions and Protection Insurance," published in the Insurance Finance Research of the Korea Insurance Research Institute on the 13th, the subscription to personal pensions among the public was highly correlated with financial literacy, income level, residential area, and education level.

Analyzing responses from 7,579 people nationwide who participated in the 13th Fiscal Panel Survey conducted by the Korea Institute of Public Finance, the paper revealed that only 12% of the survey subjects subscribed to personal pensions such as retirement pensions, pension savings, and pension insurance.

Most personal pension subscribers had high financial literacy. The paper used understanding of the interest concept as a tool to measure financial literacy, and more than 70% of personal pension subscribers had a relatively accurate understanding of the interest concept.

There was also a correlation with residential area. The higher the residence in the metropolitan area, the higher the proportion of personal pension subscriptions. The paper interpreted that metropolitan residents might have a more favorable environment for subscribing to personal pensions than non-metropolitan residents with the same level of financial literacy, or that various factors such as social network effects could influence this.

Personal pensions were also deeply related to income. The paper explained that the higher the personal income, the higher the financial literacy, which correlates with the personal pension subscription rate.

This trend also appears in previous research by the Korea Insurance Research Institute. According to the private pension policy direction report released by the institute last month, as of 2020, the personal pension subscription rate for those earning over 80 million KRW was 50.1%, while it was only 0.1% for those earning less than 20 million KRW.

The subscription rate for retirement pensions, which workers join, was 69.1% for workplaces with 300 or more employees, but only 11.9% for workplaces with fewer than 5 employees.

The low personal pension subscription rate is pointed out as making the elderly's retirement insecure. Korea's elderly poverty rate was 40.4% as of 2020, the highest level among OECD countries.

Since the actual income replacement rate of the public pension, the National Pension, was only 20.9% as of last year, the majority of elderly people who have not prepared for retirement are suffering from poverty. This is why there are calls to expand the private pension market, which supplements the public pension.

It is analyzed that comprehensive measures such as strengthening government tax benefits and enhancing financial education for the public should be prepared to revitalize personal pensions.

Kang Seongho, Senior Research Fellow at the Korea Insurance Research Institute, stated, "A pension integration control tower should be established so that private pensions can strengthen the social safety net function," and added, "It is necessary to raise the level of tax benefits to the OECD country level and differentiate tax benefits considering characteristics such as the subscriber's income level, age, and subscription period."

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