Hidden Costs Undermine South Korea’s National Pension for Retirees (Image supported by ChatGPT)
SEOUL, June 17 (Korea Bizwire) — A new report warns that South Korea’s elderly population faces a growing “double burden” as rising health insurance premiums and income taxes increasingly eat into public pension payouts, significantly reducing retirees’ real disposable income.
According to a study released Tuesday by the National Pension Research Institute, the 2022 overhaul of the national health insurance contribution system has intensified financial pressure on older adults.
A growing number of National Pension recipients are losing their dependent status under their children’s employer-based health insurance plans and are being reclassified as individual subscribers—forcing them to pay monthly premiums of up to several hundred thousand won.
The shift follows the second phase of the health insurance reform, which tightened eligibility for dependent status by lowering the annual income threshold from 34 million won to 20 million won.
The report estimates that roughly 249,000 households with members aged 60 or older will be reclassified, facing an average additional health insurance cost of 2.64 million won annually, or about 220,000 won per month.
But the challenges don’t end there. The structure of the system results in unequal treatment depending on the type of pension received. Public pensions such as the National Pension are subject to health insurance premiums, while private retirement and personal pensions are not.
For example, a retiree receiving 2 million won entirely from the National Pension pays premiums on the full amount (with 50% of it counted as assessable income), whereas another retiree receiving 1 million won from the National Pension and 1 million won from a private pension pays premiums only on the public portion.
Early Retirement on the Rise as Pensioners Flee Health Insurance Burdens (Yonhap)
Taxation also compounds the imbalance. While the Basic Pension is fully tax-exempt, the National Pension is taxed, meaning that retirees who rely solely on public pensions may end up with less take-home income than those who supplement with private or basic pensions.
These financial disincentives are influencing behavior. The report suggests that some high-income pension recipients may opt for early retirement pensions—known as “reduced early pensions”—to avoid crossing income thresholds that would trigger higher health insurance premiums. This means sacrificing long-term financial security to reduce short-term liabilities.
Under current rules, retirees can begin drawing the National Pension one to five years before the standard age, but with significant penalties. The payout decreases by 6% per year, amounting to a 30% reduction for those who claim the benefit five years early.
Given these dynamics, experts stress the need to evaluate the National Pension not just in terms of headline figures, but based on net income—after taxes and insurance premiums are deducted.
The report recommends policy adjustments including: deducting Basic Pension amounts from assessable income when calculating health insurance premiums, incorporating reverse mortgage debt into home equity assessments, and providing more detailed guidance to prospective retirees about the tax and insurance implications of their pension choices.
As South Korea’s population ages and financial sustainability becomes more urgent, ensuring equitable treatment of pension income and transparency in cost obligations is emerging as a key challenge in social policy.
M. H. Lee (mhlee@koreabizwire.com)
