Pay more, longer, and receive national pension later… Even if you are 20 years old, ‘Lifetime Guarantee’

If the insurance premium rate is 15% and 18 % and the rate of return is raised by 1%, the fund will not be depleted.
A plan is proposed to pay the national pension until age 67 and receive it from age 68.
In the UK, pension benefits begin at age 68… Japan’s insurance premium rate is 18.3%,
with maternity credit for ‘first child’ and expansion of military service credit ‘for the entire period’ proposed.

The broad framework for national pension reform promoted by the government was announced on the 1st. The gist of it is to ‘pay more, take longer, and receive later.’ At the same time, more of the insurance premiums paid by citizens are invested in high-yield but high-risk assets such as overseas stocks and real estate.

The plan is to use this method to ensure that the national pension fund will not be depleted even in 2093, when young people turning 20 this year turn 90. According to current estimates, the national pension fund will be depleted in 2055, so young people have distrust, thinking, ‘I may not be able to receive my pension when I get older.’ The goal of national pension reform is to eliminate these concerns.

Under the current system, the national pension fund will be depleted after 32 years… We need to take a third of our income to support the elderly.
The National Pension Financial Calculation Committee, an advisory body of the Ministry of Health and Welfare for pension reform, held a public hearing at COEX in Samseong-dong, Gangnam-gu, Seoul on the 1st and released the National Pension Financial Calculation Report. Based on this report, the Ministry of Health and Welfare plans to collect opinions from all walks of life and submit a comprehensive national pension operation plan containing government reform plans to the National Assembly in October.

Previously, the National Pension Financial Estimates Expert Committee announced the results of the 5th National Pension Financial Estimates on March 31. As a result, if the current system of 9% insurance premium rate and 40% income replacement rate, which is the ratio of pension amount to average lifetime income, is maintained, the national pension fund will be depleted in 2055.

Currently, the national pension has an accumulation-type structure in which premiums are accumulated. Funds collected from insurance premiums are invested in financial products, etc. to generate profits and pay pensions. After the funds are depleted, it changes to a pay-as-you-go system. Insurance premiums must be collected equal to the pension amount to be paid to citizens that year.

However, in this case, in Korea, where the birth rate is very low, there is a problem that the burden on young, middle-aged, and elderly workers becomes excessively large. According to an analysis by the Financial Estimates Committee, in 2070, 33.4% of income will have to be paid as national pension premiums, and if ultra-low birth rate continues, 42% will have to be paid. This means that two to three times more money must be spent on supporting the elderly than the current national pension premium (9% of income).

“So that 20-year-olds who signed up for the national pension this year can receive pension in their old age.”
To prevent this from happening, the National Pension Service Financial Calculation Committee first presented the goal of ‘preventing the accumulated fund from being exhausted during the financial calculation period (2023-2093).’ Kim Yong-ha, a professor of IT and Finance Management at Soonchunhyang University who served as the chairman of the Financial Calculation Committee, said in a preliminary briefing on the 30th of last month, “The key is to make a plan to secure enough income to cover salary (pension) expenses for 70 years .

” He explained, “The goal is to show that the fund will not be depleted when a person who subscribes to the national pension at the age of 20 lives until 90 years old, which is the average life expectancy, in 2023, thereby eliminating concerns about ‘maybe they will not be able to receive the pension?’” did.

The Financial Calculation Committee presented 18 scenarios related to three variables, including insurance premium rate, pension start age, and fund investment rate of return. Among these, the main thing discussed to achieve the goal is to raise the payment start age to 68. The age at which national pension benefits begin is 63 this year. It was originally 60 years old, but since 2013, it has been going up by one year every five years, and will rise to 65 years old in 2033. The idea is to raise the age to 68 at the same rate. In this case, from 2048, you must be 68 years old to receive the national pension. This is a similar system to the UK, which requires people to be 68 years old to receive pension from 2037 to 2039. Three

insurance premium rates were proposed: 12% , 15 % , and 18 %. In a situation where the starting age for pension benefits was delayed to 68, if 12% of income was collected as insurance premiums and the fund investment rate of return was increased by 1 percentage point, the fund was found to be depleted in 2080. In the scenario where the insurance premium rate is 15% and the fund investment rate of return is increased by 1 percentage point, the fund is not depleted until 2093. If the insurance premium rate is increased by 18% and the fund investment rate of return is increased by 0.5 percentage points, the fund will be depleted in 2093. If the fund investment rate of return increases by 1 percentage point, it will not be depleted. Even if it is raised to 18%, it is lower than the Japanese employee pension insurance premium rate (18.3%).

Currently, participation in the national pension is mandatory only until the age of 60. After age 60, you do not need to pay insurance premiums even if you have income. The Financial Accounting Committee proposed sequentially matching the upper age limit for subscription and the age at which benefits begin to be received. In this case, if you earn income until you turn 68, you must pay insurance premiums.

For office workers, companies pay half of the national pension premium (9%). As the mandatory national pension subscription age increases, workers’ real income decreases and the burden on employers increases. Considering the backlash, the Financial Accounting Committee proposed a plan to allow employers and workers to decide by agreement whether to pay national pension premiums even after the age of 60 by 2033.

In order to delay fund depletion as per the goal of the Financial Calculation Committee, the insurance premium rate must be raised and the fund investment rate of return must also increase. Park Young-seok, a professor of business administration at Sogang University who served as chairman of the Fund Management Development Expert Committee, said, “(The national pension fund’s) investment ratio in risky assets must be increased.”

According to the Fund Management Development Committee, the National Pension Fund currently invests 55% in safe assets and 45% in risky assets, while pension funds in major countries invest 60% in risky assets. In addition, the fact that the ratio of domestic stock and bond investment is high compared to the size of Korea’s financial market was also pointed out as a problem. Professor Park explains that by resolving structural limitations, the National Pension Fund’s rate of return can be increased to the level of major pension funds.

Professor Kim said, “In the (5th financial estimate), the (expected fund investment rate of return) was 4.5%,” and “The average for the past 35 years was 5.1%, so why can’t we do it in the future?” He said, “If (the rate of return) is only 5.1%, the pension start age is raised to 68 and the insurance premium rate is increased to 15%, the fund can be maintained stably until 2093.”

‘The pension amount is 40% of average lifetime income’ and there is no change… There are differences of opinion in the discussion paper
The Financial Accounts Committee proposed expanding maternity credit. Currently, subscribers who have given birth to or adopted a second child or more are recognized for an additional subscription period, allowing them to receive a larger pension amount. The idea is to expand this to ‘one person’. According to the Organization for스포츠토토 Economic Cooperation and Development ( OECD ), Korea is the only country that does not provide maternity credit to subscribers with one child.

He also suggested expanding military service credit. Currently, only 6 months are recognized, but the plan is to recognize the entire period of military service. It was proposed that maternity credit and military service credit be 100% supported by the national treasury, like most developed countries.

It was also proposed to revise the basic pension system, which is paid through taxes to the bottom 70% of income earners among those aged 65 or older. Among the elderly turning 65, the number of national pension subscribers is increasing and their income and wealth levels are improving, but those in the bottom 70% of income earners receive a lump sum of about 300,000 won in basic pension. The Financial Calculation Committee said that since the poverty rate among the elderly, women, and seniors living alone is relatively high, it is necessary to select beneficiaries according to certain criteria and consider adjusting the pension amount.

The Financial Accounting Committee said it could consider legislating that the government guarantees payment in order to reassure citizens who are anxious about whether they will be able to receive the national pension. This means that it can be discussed in conjunction with pension reform to ensure that the fund is sustainable.

During the discussion of the Financial Accounts Committee, an argument was made that the income replacement rate should be increased, but it was not included in the report. Nam Chan-seop, a professor of social welfare at Dong-A University, and Joo Eun-seon, a professor of social welfare at Kyonggi University, who argued for an increase in the income replacement rate by saying, “We should receive more,” resigned from their positions as expert committee members in protest against the contents of the previous day’s report. Isran, Director of Pension Policy at the Ministry of Health and Welfare, said, “The government considers the income replacement rate important,” and added, “A variety of opinions will be presented at the public hearing.”

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