The National Pension Fund will see its pool of money depleted by 2055, with a deficit starting in 2041. The fund will be depleted two years earlier than 2057, the 2018 estimate, because of Korea’s ever-decreasing total fertility rate, which is currently 0.81, and its aging population. The fund is getting depleted faster and faster while the government is taking no action on pension reform.
An expert committee dedicated to estimating pension-related finance under the Ministry of Health and Welfare issued this grim outlook on Friday: “the 5th National Pension Finance Estimation.” According to the National Pension Act, the government estimates the timing of fund exhaustion every five years and uses the estimation to come up with pension reform plans.
The fund is set to post a shortfall starting in 2041 and be depleted completely by 2025, according to the latest projection released by the National Pension Service (NPS). The timings of the deficit and depletion are one year and two years earlier than the previous projection in 2018.
At Friday’s briefing, Jeon Byung Mok, head of the committee, explained, "changes in the demographic structure is one of the direct factors for worsening finances." This means that the number of subscribers who pay national pension premiums will decrease due to low fertility rates. Conversely, as the average life expectancy, 83.6 years old, increases, the number of people receiving national pension benefits is increasing. In other words, delayed pension reform has worsened the financial health of the National Pension Fund in the midst of plummeting birth rates and a rapidly aging population.
Initially, the government tried to announce the estimate in March, but it announced the interim results two months earlier on Friday to speed up pension reform. The problem is that the final estimate to be released in March could be worse than the interim estimate released on Friday. This is because it chose a somewhat optimistic fertility rate, a key variable in fiscal estimation.
Friday’s estimate used the ‘median’ scenario, which assumes the total fertility rate would recover to 1.21 in 2046. However, the final estimate will include a 'low' scenario that assumes the worst fertility rate, 1.02. Experts pointed out that "the released estimate is too optimistic considering the fact that there is no reason for the birth rate to rebound."
Based on the estimate announced on Friday, the National Assembly's Special Committee on Pension Reform will draft a reform bill by the end of this month and finalize the plan by the end of April.