National Pension Benefits to Be Reduced to 50%

National pension benefits after the retirement is likely to be lowered to 50% next year, from 60% of the income replacement rate.

On the other hand, the premium will be raised to 15.8% in the long term, from the current 9% of the income.

An official at the Ministry of Finance and Economy (MOFE) said that the National Pension Fund Development Committee is reviewing a plan to cut the income replacement rate from 60% to 50% in order to stabilize the finance of the fund, while raising the premium from 9% to 15.85%.

The committee is expected to choose one among three plans and report to the Ministry of Health and Welfare. The three plans include maintaining 60% of the income replacement rate and raising the premium to 19.85%, cutting the replacement rate to 50% and raising the premium to 15.85%, and lowering the rate to 40% and increasing the premium to 11.85%. Afterward, the Minister of Health and Welfare will submit the amendment of the National Pension Fund Law based on this report around September this year.

“Most of the committee members are supporting for cutting the income replacement rate to 50% and raising the premium to 15.85%,”said an official at the MOFE.

The plan is likely to bring about controversies because the premium will go up while the income replacement rate will go down.

The government is reviewing a plan to reduce the income replacement rate to 50% from next year and keep the premium at 9% by 2009 before raising the premium step by step from 2010 to 2030. It believes that the nation’s current premium rate is too low compared with 17.5%, the average premium of OECD member countries.

Korea Institute for Health and Social Affairs predicted that if the current scheme is maintained, the National Pension Fund will be depleted by 2044.

Meanwhile, an official at the Ministry of Health and Welfare said, “The plan to stabilize the finance was not decided yet and even if the pension scheme is changed, the existing recipients will not suffer disadvantages.”

“Not all the recipients will receive the 50% of their average income from next year. The amount of pension will be decided upon the existing income replacement rate,” he added.

In other words, if one has paid the premium for ten years when the income replacement rate was 60% and 50%, he or she will receive the fund of 55% of the rate after the retirement.

The income replacement rate has been lowered to 60% from 70% in 1998. The scheme is being refurnished this year in accordance with the National Pension Fund Law that required estimating the finance of the fund every five years.

Eun-Woo Lee libra@donga.com