Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
Growing number of foreigners tap NPS loophole for lifetime pensions
A client receives a consultation at a branch office of the National Pension Service in Seoul in March 2023. Yonhap
By Lee Hyo-jin
Gov't to review retroactive payment scheme amid misuse concerns
A growing number of foreign residents in Korea who have contributed to the National Pension Service (NPS) for only short periods are using a loophole in the retroactive payment system to secure old-age pension benefits, with Chinese nationals accounting for a significant share of such cases, insiders at the state pension operator said Friday.
The cases are fueling scrutiny of the scheme, which was originally intended to expand pension coverage for people with interrupted careers, and prompting calls for reform.
Under current measures, individuals must have at least 10 years, or 120 months, of contributions to qualify for a monthly old-age pension.
The back-payment system allows people who were exempt from paying pension premiums for certain periods to pay those missed premiums later in a lump sum. The payments are then added to their contribution records.
The system was introduced in 1999 to help people maintain their pension rights after career interruptions caused by unemployment, marriage, childbirth and other circumstances. Up to 119 months of missed contributions can be paid retroactively.
Foreign nationals can also make back payments for past periods when they were registered in Korea and eligible for the program.
However, concerns have grown as some foreign nationals have used the system after only brief periods of enrollment in the NPS.
NPS branch officials have recently identified cases in which some foreign nationals contributed for as little as one month and later made back payments to meet the 10-year contribution requirement for an old-age pension, judging that receiving monthly pension benefits would be more advantageous than taking a lump-sum refund of their contributions.
In one case, a Chinese national entered Korea on an H-2 visa, which allows ethnic Koreans from China and former Soviet countries to work in Korea, and was enrolled in the NPS for just one month before turning 60.
The person was initially eligible for a lump-sum refund of the premiums paid. But after determining that a monthly pension would be more beneficial, the person instead made back payments for another 119 months in a lump sum and is now receiving a monthly old-age pension.
In another case, a Chinese national with permanent residency in Korea made NPS contributions for nine months before making back payments and applying for an early old-age pension. The person now lives in China while receiving the pension.
Figures obtained from the NPS by Rep. Han Zee-a of the main opposition People Power Party show that foreign nationals’ use of the retroactive contribution program has surged as their participation in Korea’s national pension system has steadily increased.
Applications for the program rose nearly 20-fold, from 43 in 2015 to 848 in 2024. The amount paid through the program increased even more sharply, jumping 26.9-fold from 203.3 million won ($147,000) to 5.46 billion won over the same period.
Chinese nationals made up the overwhelming majority of foreign applicants during the 2020-2022 period, accounting for 67.6 percent, followed by U.S. nationals at 13.7 percent and Canadians at 8.4 percent.
NPS officials may struggle to identify cases involving abuse of the system, as foreign nationals can have complicated records involving previous enrollment, marital status and residency status. Some of these records may be difficult to verify through government databases, potentially leading to errors in determining which periods qualify for back payments.
In response to calls for improvements to the system, the Ministry of Health and Welfare said it was reviewing possible changes.
"We are reviewing possible improvements to the system by looking at how foreign nationals are using the back payment program and examining practices in other countries," the ministry said in a statement. "If necessary, we will pursue changes to the system, including revisions to relevant laws and regulations."
The pension operator said that although the reported cases fall within the current system, it would review the rules in response to public concerns.
"The back-payment system is available to both Korean and foreign nationals, regardless of nationality. The cases appear to have been handled within the scope of the current system," an NPS official said.
The official added that the NPS would follow any changes made by the welfare ministry, which oversees the pension scheme.