The government on Friday announced four different proposals for reforming the national pension scheme that center on strengthening support for beneficiaries going forward amid concerns over fund shortfalls.
The Ministry of Health and Welfare, which oversees South Korea's National Pension Service, the world's third largest, with 630 trillion won ($564 billion) in assets, announced the differing drafts after President Moon Jae-in called for an overhaul of the ministry's draft on reforming the national pension scheme in a way that better reflects public opinion.
|Health and Welfare Minister Park Neung-hoo.(Yonhap)|
The proposals, subject to parliamentary approval, come amid public worry that the state fund will likely be depleted by 2057 under the existing system.
"The proposals to the state pension scheme will be finalized after fully reflecting public opinion," Health and Welfare Minister Park Neung-hoo told reporters in Seoul. "Decisions on the proposals will be made to relieve the anxiety of the people."
According to the first proposal, the government would maintain the current scheme with an income replacement rate set at 40 percent and insurance premiums at 9 percent. The proposal would only increase the basic pension to 300,000 won per month in 2021.
This, in conjunction with the broader National Pension support, will allow a person who earns an average of 2.5 million won a month to get 867,000, if he or she pays premiums for 25 years.
The second draft would raise basic pension to 400,000 won in 2022, without changing the current insurance premiums and income replacement rate. This would increase the actual amount that a person can receive to 1.01 million won per month.
The ministry said the third option would raise insurance premiums to 12 percent in order to achieve the pension's income replacement rate of 45 percent, with total pension provided hitting a monthly 919,000 won.
According to the fourth plan, the pension's income replacement rate would be increased to 50 percent, with insurance premiums set at 13 percent, and total pension paid to people reaching 971,000 won per month
Also, the ministry announced that it plans to incorporate a clause guaranteeing payment of the NPS, to make clear that the ultimate responsibility for payment rests with the government.
Such a clause will make it mandatory for the state to cover the state pension program, officials said.
So far, NPS businesses have been controlled by a health minister, but actual operations are managed by a public corporation.
The latest NPS studies showed that the pension is expected to post a shortfall starting in 2042, resulting in the scheme drying up earlier than anticipated.
Over the past 10 years, South Korea has jacked up state health insurance premium rates each year, except for 2009 and 2017, with the annualized increase rate averaging 3.2 percent over the period.
In August, South Korea's state pension fund said it is on course to be depleted in 2057 under the existing system amid a low birth rate and sluggish economic growth. (Yonhap)