‘universal’ pensions in South Korea

The only thing universal about South Korea’s “universal pension system” is the rate of contribution. The more a worker contributes, the higher the pension she receives. With no contributions, there is no pension.

The pension system is supposedly pre-funded, but the contributions are not sufficient to pay the pension promises. Actuarial projections predict that assets in the fund will be exhausted by the year 2057. To prevent this, the government proposes to either (1) raise contributions to 10.8% of salary from the current 9% rate or (2) lower the promised income replacement from 45% to 40% “while raising contributions to 13 percent by 2033”.

President Moon Jae-in said Monday the government would ensure national pension payments as long as the government exists … [so] the public needn’t worry about their pensions in the future. ….

The National Pension Service estimated earlier this month that its funds will dry up by 2057, three years earlier than an estimate five years ago, amid a rapidly aging population and a birthrate that stood at 1.05 births per woman last year, despite the government spending more than 126 trillion won ($113.1 billion) since 2006 to encourage Koreans to have kids. ….

“Since the owners of the universal pension system are the people, the most important thing about reforming the pension system is to win social consensus,” he said. …. [Emphasis added]

Two basic reform plans were proposed by an advisory group to the National Pension Service. One plan calls for maintaining the current 45 percent income replacement ratio – the percentage of one’s working age income covered by welfare payouts – but raising contributions to 10.8 percent of a person’s salary next year from the current 9 percent.

The other plan envisions dropping the income replacement ratio to 40 percent while raising contributions to 13 percent by 2033.

Kang Jin-Kyu, “Moon says gov’t to legally guarantee pensions“, Korea Joongang Daily, 28 August 2018.

South Korea also has a means-tested social pension of 100,000 Won (US$90) a month for poor residents aged 65 and older, which is not mentioned in the article. This pension is non-contributory, and couples who qualify receive 200,000 won a month.

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