National pension to be depleted by 2057

Members of a civic group hold a protest at the Korea Chamber of Commerce and Industry in Seoul, Friday, calling on the National Pension Service to secure their post-retirement pension. Yonhap

By Kim Hyun-bin

The national pension fund is expected to be exhausted by 2057, inevitably forcing the government to raise premiums to keep the pension running, according to the National Pension Service (NPS), Friday.

An advisory panel of the public pension fund said the reserve was expected to peak in 2041, but starting from the following year, it was predicted to decline and to be depleted by 2057.

The estimate is three years earlier than the government's previous projection in 2013, which forecast that the fund would be depleted by 2060.

The NPS suggested two options _ to increase the premium from the 9 percent to 11 percent starting next year, or increase the premium gradually to 13.5 percent over the next decade.

Any increase in the premium would be the first in 20 years.

As of late May, there was 634 trillion won ($557 billion) in the national pension fund _ equivalent to 36 percent of the GDP.

According to the NPS, the fund is expected to peak at 1,778 trillion won (US$1.5 trillion) in 2041, lower than the 2,561 trillion won predicted in 2013.

“The reduction in the reserves peak is due to several factors, which include sluggish economic growth, wage growth rate and interest rates,” the NPS said.

The number of pension subscribers will peak at 21.8 million next year, but will then gradually decline to 10.1 million by 2088.??

The calculations are based on increased life expectancy, predicted to reach 90.8 for men and 93.4 for women by 2088.

“The decline in the birth rate and the increase in the average life span are expected to increase the number of people eligible to receive the pension, in turn drastically reducing the pension reserves,” said an official.

The pension operator suggested two premium plans to sustain the system.

The first option maintains the pension income replacement rate at 45 percent, but raises the premium to 11 percent from the 9 percent now, starting next year.

The premium is expected to increase again in 2034 to 12.3 percent. After 2034, the NPS would adjust the premium every five years.

The second option aims to lower the replacement rate by 0.5 percentage point annually until it reaches 40 percent in 2028, while gradually increasing the premium to 13.5 over the next decade.

The eligible age to receive the pension _ set at 65 until 2033 _ would be adjusted to 67 by 2043.

The welfare ministry plans to gather public opinion and to submit the revised proposal to the National Assembly in October.