SEOUL, May 23 (Korea Bizwire) – A new report has revealed that South Koreans on average receive pension benefits that are significantly lower than the average income in the country before retirement, making the lives of retirees harder for those who rely on pensions.
According to an audit report on the national pension system released by the Board of Audit and Inspection of Korea (BAI) yesterday, the income replacement rate for pensioners aged over 65 in South Korea amounted to a mere 24 percent, well below the nation’s adequate replacement of 70 percent.
The income replacement rate refers to the ratio between the income earned while employed and the pension credit an individual is eligible to claim.
After analyzing the average length of pension input periods (23.81 years) and forecasting the income earned in the future from the database of national pension subscribers and pensioners, the Korea Institute for Health and Social Affairs (KIHASA) estimated South Korean pensioners receive 23.98 percent of their pre-retirement income on average.
The shocking figure pales in comparison to the argument from both the OECD and the academic world in developed countries that pension benefits need to be equivalent to 70 percent of the average income in order for pensioners to secure their social security and lead a decent life after retirement.
With the introduction of the National Pension Service of Korea, the South Korean government previously set the adequate replacement rate at 70 percent for someone who has paid income tax for forty years.
However, fears that the national pension fund might run dry saw the nominal pension return in the country drop to 60 percent during the first national pension shakeup in 1998.
During the second pension shakeup, the figure again dropped to 60 percent, suffering an additional 10 percent drop in the following year.
As the government plans a gradual drop of the adequate replacement rate to 40 percent by 2028, an increasing number of taxpayers in the country are voicing concerns.
According to Bloomberg, South Korea’s public National Pension Service is the world’s third-largest pension fund, behind Japan’s and Norway’s, boasting a whopping 546 trillion won ($456.5 billion) in assets.