"No Money for Immediate Needs"... National Pension Lump-Sum Refund Recipients Reach 8-Year High Last Year

The number of people forfeiting their National Pension entitlements-considered the last safety net for retirement funds-in favor of receiving a lump-sum refund has reached its highest level in eight years. This trend is particularly pronounced among those who, upon reaching the pensionable age but lacking sufficient years of contributions, opt for a lump-sum payout to cover immediate living expenses, rather than extending their enrollment to strengthen their retirement safety net. As a result, concerns are mounting about the worsening problem of elderly poverty.

National Pension Service Fund Management Headquarters Building. The Asia Business Daily DB.

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According to the National Pension Service on April 9, the total amount of National Pension lump-sum refunds paid out last year reached a record high of 1.3253 trillion won. The number of recipients also rose to 199,383, up from 196,290 the previous year, making it the largest figure in eight years since 2017 (201,278).

Looking at annual trends, the increase is clear. In 2021, there were 189,205 recipients, with a total payout of 940.7 billion won. This rose to 199,170 recipients (1.0744 trillion won) in 2022, then dipped to 175,279 (1.1469 trillion won) in 2023. However, it rebounded in 2024 to 196,290 recipients (1.2647 trillion won), before reaching last year’s record highs for both amount and number of recipients in the past eight years.

The lump-sum refund system is a type of "liquidation benefit" paid to those with less than 10 years of contribution who reach the age of 60, or who are no longer eligible due to reasons such as death or loss of nationality. As of 2024, cases where the benefit was paid due to reaching the eligible age accounted for a dominant 69.6% of all cases. To be eligible for the basic National Pension benefit (the old-age pension), one must have contributed for at least 10 years. Those with less than 10 years of contributions fall short of this requirement. The next most common reasons were overseas emigration (19.4%), loss of eligibility for more than one year (5.9%), and death (5.0%).

Individuals with less than 10 years of contributions who reach pensionable age can choose either to receive a lump-sum refund or to continue contributing voluntarily until reaching 10 years to qualify for a pension. However, there has been a noticeable increase in people opting for a lump-sum payment to secure quick cash rather than bolstering their retirement through voluntary continued enrollment. In fact, the number of voluntary contributors to the National Pension stood at 454,886 last year, a decrease of about 5% compared to 479,224 in 2024, marking a downward trend for two consecutive years.

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The NH Investment & Securities 100-Year Life Research Center recently reported that securing pension rights is far more advantageous financially than opting for a lump-sum refund. According to the report, the lump-sum refund only pays back the contributions plus standard deposit interest, while the pension reflects inflation and is paid monthly for life. Researcher Nam Changju emphasized, "With life expectancy increasing, the risk of depleting one's assets is growing. It is time to focus on the value of pension entitlements, which are like an inexhaustible spring, rather than the temptation of a one-time lump sum."

Experts warn that this phenomenon could worsen poverty among Korea’s elderly, who already suffer from the highest elderly poverty rate (39.7%) among OECD countries. Professor Jeong Soondul of Ewha Womans University’s Department of Social Welfare said, "Most people who opt for the lump-sum refund are in difficult economic circumstances and urgently need money for daily living. If they exhaust this lump sum instead of receiving a regular income from a pension, they face a high risk of falling into 'extreme poverty' with nothing to rely on in advanced old age." She added, "To ensure the National Pension fulfills its role as a core income security system for retirement, it is crucial to strengthen incentives for voluntary continued enrollment and introduce policies that help vulnerable groups secure the required contribution period."

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