Korea National Pension Research Institute report on 'Crisis and Response in Korea's Multi-Tier Old-Age Income Security System'

Fund exhaustion delayed to 2065, but coverage gaps persist — coordination with retirement pensions seen as essential

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Although a higher national pension contribution rate and strong recent investment returns have pushed back the fund's projected depletion date, a fundamental overhaul of Korea's multi-tier old-age income security system is needed to address the country's world-leading elderly poverty rate and retirement income inequality, a new report said.

To meaningfully raise the income replacement rate — the share of pre-retirement income received after retirement — Korea must urgently reform its occupational pension system by making enrollment mandatory and converting payouts to lifelong annuities, the researchers said.

Low pension amounts and short enrollment periods limit retirement income security

According to a report released Friday by Korea National Pension Research Institute researchers Yu Ho-seon and Lee Ye-in, the pension reform carried out last March delayed the national pension fund's projected deficit onset by seven years to 2048 and pushed back the fund exhaustion date by eight years to 2065.

An analysis by the National Assembly Budget Office found that the reform is expected to reduce the cumulative deficit by 1,763 trillion won ($1.15 trillion) by 2095.

Yet the retirement income security that citizens actually experience remains deeply inadequate.

As of June 2025, the average monthly old-age pension payment stood at 679,331 won — just 28 percent of the median income for a single-person household. The basic pension paid to the bottom 70 percent of seniors aged 65 and older reaches a maximum of 342,510 won per month, far too little to lift the elderly out of poverty.

The low pension amounts stem largely from short enrollment periods: many Koreans enter the workforce late due to youth unemployment and job-search delays, then leave their primary jobs in their early-to-mid 50s, leaving little time to accumulate pension contributions.

EU member states average 36.3 years of public pension enrollment, while new pension recipients in Korea average around 20 years.

The dual structure of the labor market and gender disparities also deepen old-age poverty.

Women frequently leave the workforce in their 30s for marriage and child-rearing, then return to employment in their 40s, resulting in shorter national pension enrollment periods and lower retirement payouts than men.

As a result, poverty rates among seniors aged 76 and older are far higher than among younger retirees, and income inequality within the elderly population is rising sharply.

Europe's blend of public and occupational pensions offers a model

The report advises Korea to look to major European countries that confronted population aging and economic stagnation before Korea did.

Nations that combine an adequate minimum income guarantee, an earnings-related public pension and a mandatory occupational pension have managed to secure both retirement income adequacy and fiscal sustainability, the researchers found.

Norway, Denmark, France and the Netherlands have made occupational pension enrollment compulsory or quasi-mandatory, with employers and workers at the center of the system.

These countries use occupational pensions to ease the fiscal burden on public pensions while keeping the overall income replacement rate high for retirees. European seniors rely on public pensions for about 52 percent of their disposable income, with the remaining 48 percent drawn from occupational pensions, personal pensions, earned income and other sources.

Korea nominally has a multi-tier pension system, but its occupational pension component is failing to perform its intended role.

Only 53.3 percent of eligible workers are enrolled, and about 65 percent of funds transferred to individual retirement pension accounts upon job changes or retirement are withdrawn early.

Ultimately, only 13 percent of benefit-receiving accounts actually pay out in annuity form, while the remaining 87 percent are taken as lump sums — leaving the system functioning in effect as a savings product that provides virtually no retirement security.

Strengthening childbirth credits and converting retirement pensions to lifelong annuities

Substantive policy measures to extend actual national pension enrollment periods are needed to overhaul Korea's retirement income security system.

The researchers said the target average enrollment period should be set at a minimum of 30 years, and called for dramatically strengthening the childbirth credit system for those whose careers are interrupted by caregiving and child-rearing.

They proposed shifting from the current retroactive support model to one that recognizes credits immediately upon childbirth and child-rearing, granting five years of credited enrollment per child with flexible adjustments to recognized income.

The researchers also called for raising the income threshold for premium support for low-income self-employed enrollees to 1.03 million won per month to encourage participation among vulnerable groups. Over the longer term, they said Korea should gradually raise the national pension contribution rate ceiling to around 15 percent — taking into account the burden of other social insurance contributions — while also discussing the introduction of an automatic adjustment mechanism linking remaining life expectancy to the pension eligibility age, and expanding government subsidies for the public pension.

A complete restructuring of the occupational pension system — from simple savings to a vehicle for lifelong income — is also urgently needed, the researchers said.

Given capital market conditions and the goal of retirement security, the researchers proposed introducing a collective defined-contribution occupational pension scheme as a viable option. Under this model, a nonprofit institution with extensive pension fund management experience would pool participants' assets for joint medium-to-long-term investment and pay out benefits as lifelong annuities.

Contribution rates would remain unchanged, annuity payments would be the default, and participants would retain the flexibility to take a portion as a lump sum.

The researchers also urged active consideration of a new housing benefit program targeting asset-poor seniors aged 76 and older — providing 30 percent of the standard median income following a means test — as part of a more efficient restructuring of the minimum income guarantee system for the elderly poor.

No single public pension system can adequately respond to the challenges of a super-aged society, the researchers said, calling for a comprehensive multi-tier pension reform that clearly defines the role of each component and strengthens the system as a whole.


thlee@heraldcorp.com