[Yonhap]
[Yonhap]

National pension premiums will rise starting with paychecks issued this month. Higher earners will see larger increases, but the structure also means they will receive more in pension benefits down the line.

The Ministry of Health and Welfare announced Monday that the upper ceiling on the standard monthly income used to calculate national pension contributions will rise from 6.37 million won ($4,230) to 6.59 million won, while the lower floor will increase from 400,000 won to 410,000 won. The new thresholds apply from this month through June next year.

The adjustment reflects a 3.4 percent average income growth rate recorded among all national pension subscribers over the past three years.

National pension premiums are calculated by applying the contribution rate to a subscriber's monthly income. However, the standard monthly income used in that calculation is subject to both a ceiling and a floor — meaning premiums are not charged on income above the ceiling, and subscribers earning below the floor are still assessed based on the floor amount.

The standard monthly income thresholds are revised once a year every July. Since 2010, the Ministry of Health and Welfare has adjusted both the ceiling and floor annually to reflect changes in subscribers' average income.

High earners making 6.37 million won or more per month will feel the biggest impact from this round of changes.

With the ceiling rising and the contribution rate increasing from 9 percent to 9.5 percent under the national pension reform, monthly premiums for those subscribers will climb from 605,150 won to 626,050 won — an increase of 20,900 won.

For company employees, however, employers cover half the premium, so the actual additional burden on workers comes to about 10,450 won per month.

Subscribers earning less than 410,000 won per month will also be affected by the floor adjustment. Their monthly premiums will rise modestly, from 38,000 won to 38,950 won.

The roughly 86 percent of subscribers earning between 410,000 won and 6.37 million won per month are not subject to the threshold adjustment and will only see the effect of the higher contribution rate.

While the premium increases add to the immediate financial burden, pension payouts are also set to grow over the long term.

The income replacement rate for the national pension rose this year from 41.5 percent to 43 percent. This means a subscriber with average earnings who pays into the system for 40 years will receive pension benefits equivalent to 43 percent of their lifetime average income after retirement.

Because the national pension is structured so that higher contributions lead to larger payouts in retirement, the premium increase is expected to translate into greater pension income over time.

This structure applies equally to both workplace subscribers and self-employed subscribers.

Experts say the premium hike may add some immediate financial pressure, but note that the longer a person contributes, the greater the boost to their eventual pension benefits — and that the increase should therefore be viewed in the context of long-term retirement income security.


rainbow@heraldcorp.com