National pension rate forecast to be raised

By Kim Hyun-bin

To ensure the smooth management of the National Pension Service (NPS), the government conducts a recalculation every five years of its financial earnings and expense, which is called the The National Pension Service Financial Forecast.

The results of the fourth financial forecast and proposals to enhance the pension system are expected to be unveiled this July.

“We wanted to submit our financial forecast in March, but faced some delay and we are scheduled to publicize the results and system enhancement proposals in the month of July or August,” said Sung Ju-ho, head of the financial forecast committee at the NPS.

The Ministry of Health and Welfare will hold a public hearing after the results are released to garner public opinion.

The government has maintained the insurance premium at 9 percent of current income for the last two decades.

However, with this rate the National Pension could be depleted by 2055, due to a decline in the numbers of people paying into the system.

The nation's low birthrate and decrease in adult working population are expected to quicken the depletion of the national pension fund by a couple of years.

Depleted by 2055

Kim Yong-ha, a former head of the NPS forecast committee released a thesis calculating the expected fund depletion date.

According to Kim, if the government maintains the premium rate at the status quo the funds will be depleted by 2055.

Kim put in to consideration last year's birthrate, which stood at 1.05 per woman; and if the current premium rate at 9 percent is left unchanged, the national pension will be depleted by 2055, which is five years earlier than the second and third government financial forecasts predicted.

The government has two options to slow down the depletion; one is reducing pension payouts or increasing the premium payments.

After the first government forecast in 2003, the pension fund was expected to be completely depleted by 2047.

To avoid catastrophe, the government decided to reduce the income replacement ratio.

The ratio stood at 60 percent in 2007, but have been slowly reduced each year and expected to reach 40 percent by 2028.

The move resulted in extending the lifeline of the NPS by 13 years to 2060.

Increasing premium only option

Many experts believe it will be difficult to further reduce the income replacement ratio and the government's only option left is to increase the premium.

In 1988, the premium stood at 3 percent and was increased once in 1998 to 9 percent.

Since then, the number has been left unchanged.

The premium is far less than other developed nations, which currently average 15 percent to 18 percent.

“Under the law the National Pension Service needs to maintain a long-term financial structure. If we can't reduce the income replacement ratio, the only option we have left is to increase premiums,” said an official from the National Pension Service.