Korea’s Social Security Cost Grows Fastest in OECD

By Lee Hyo-sik
Staff Reporter

Households' pension contributions and other social security-related payments in Korea are increasing at the fastest pace among the 30 OECD member economies.

The soaring costs are putting a heavier financial burden on families here and diminishing their ability to spend on various goods and services.

According to an OECD report Monday, Korea's ratio of pension and other welfare-related spending on total taxation surged to 20.8 percent in 2007 from 7 percent in 1995. This 13.8-percentage point increase was considerably higher than the average OECD gain of 0.5-percent over the 13-year period.

Statistics Korea also said domestic households paid an average of 170,000 won per month from July to September for state pension, health, employment insurance and other social security-related coverage, up 38 percent from 123,000 won in the third quarter of 2004.

These expenditures are expected to continue to head upward in the future, with Korean working families having to pay more to financially support a growing number of senior citizens.

In a report to the National Assembly, the Ministry of Strategy and Finance said the ratio of pension and other welfare-related contributions to gross domestic product (GDP) will reach 6 percent this year.

It will continue to rise to 6.3 percent in 2010, 6.7 percent in 2011, 7 percent in 2012 and 7.3 percent in 2013.

A ministry official said national pension, health insurance and other social security related-expenses will likely go up at a faster clip in the future, due to the worsening financial soundness of the state-funded welfare schemes. "Additionally, the rapidly aging population and low birthrates are forcing working families to shoulder greater financial burdens to support the elderly and newborns. It will negatively affect households' ability to spend, further dampening the prolonged sluggish domestic demand."

Salaried workers and the self-employed making over 3.6 million won per month will likely pay more to the state-run pension program from next April, with the government moving to apply higher rates to high-income earners.

The national employment insurance is also expected to charge higher rates to contributors as its financial soundness has deteriorated, due to the record of number of laid-off workers claiming unemployment benefits this year in the aftermath of the global economic downturn.

Salaried employees and the self-employed will pay a greater portion of their income for the state-run health insurance as its premiums will be hiked 4.9 percent in January.

Truckers, construction workers and other physical labor providers will be required to pay greater premiums, up as much as 10 percent in 2010, to benefit from insurance that covers workplace accidents.

leehs@koreatimes.co.kr

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