Pension payouts to exceed revenues by 2027

The Korea Times

The Korea Times

Finance

Wed, November 29, 2023 | 08:55

Economy

Pension payouts to exceed revenues by 2027

Posted : 2023-06-22 16:50

Updated : 2023-06-23 08:59

A person waits for his turn at a branch of the National Pension Service (NPS) in northern Seoul, June 12. Yonhap

Concern grows over National Pension's depletion

By Lee Yeon-woo

Korea's record low birthrate is expected to reduce the number of contributions to the state-run retirement pension by approximately 860,000 over the next five years, while the number of pensioners will increase by 2.4 million during the same period.

As a result, total pension payments will surpass pension revenue by 2027, according to a report by the National Pension Service (NPS) released on Thursday.

In the mid-financial prospect report, the NPS noted that the number of pension subscribers making contributions to the pension fund is projected to decline continuously over the next five years, falling to 21.63 million. This represents a decrease of 861,418 from the end of 2022.

In the meantime, the number of subscribers eligible to receive pensions is expected to grow rapidly due to an aging population.

The report anticipates that the number of pensioners, which stood at 6.64 million at the end of 2022, will increase to 9.04 million by the end of 2027. This is an increase of 2.4 million in just five years.

The retirement of the baby-boomer generation, those born between 1955 and 1963, is adding to the burden.

"The baby-boomer generation not only has a larger population, but also a higher number of individuals with a history of subscriptions compared to previous generations," the report stated. "This indicates that the number of new pension recipients will continuously increase during the forecast period (2023-2027)."

Despite a decrease in subscribers, income from insurance premiums is projected to increase in the short term, from 58.9 trillion won ($45.4 billion) in 2023 to 66.7 trillion won in 2027, driven by wage increases and other factors. However, by 2027, the payout amount is expected to surpass the insurance premium income, meaning more money will be distributed than collected.

The report also noted that the total income will continue to outstrip expenditure for some time thanks to investment profits and interest income, leading to the continued growth of reserve funds.

The reserve fund stood at 891 trillion won at the end of 2022, and is expected to reach approximately 942 trillion won in 2023, and 996 trillion won in 2024. The report predicts that the reserve fund will exceed 1 quadrillion won in 2025.

Nevertheless, these are not enough to prevent the anticipated depletion of the fund. According to a separate long-term fiscal projection by the NPS, the reserve fund is projected to be depleted by 2055 under the current scheme.

yanu@koreatimes.co.kr