The number of South Koreans opting to receive their national pension benefits before the official retirement age, despite incurring a financial penalty, has reached nearly one million. (Image courtesy of Yonhap)
SEOUL, Mar. 21 (Korea Bizwire) – The number of South Koreans opting to receive their national pension benefits before the official retirement age, despite incurring a financial penalty, has reached nearly one million, reflecting the economic struggles faced by many retirees.
According to data from the National Pension Service released on March 20, the total number of early retirement pension recipients stood at 849,744 as of November 2023, with 574,268 men and 275,476 women taking this route. This figure represents the highest level since the early retirement pension system was introduced in 1999.
The early retirement pension, often referred to as the “loss pension,” allows individuals to start receiving their national pension benefits earlier than the designated retirement age, but at a reduced rate. The earlier the pension is claimed, the greater the reduction in monthly payments.
The surge in early retirement pension claims has been steady over the past decade. In 2012, there were 323,238 recipients, but this number has risen annually, reaching 765,342 in 2022. Projections from the National Pension Research Institute suggest that the total number of early retirement pension recipients will surpass one million in 2025, hitting approximately 1.07 million.
A significant factor contributing to the sharp increase in claims last year was the raising of the national pension eligibility age from 62 to 63 in 2023, as part of a long-term plan to gradually extend the retirement age to 65 by 2033. This change left many individuals born in 1961, who had anticipated receiving their pensions at age 62, facing a one-year income gap before becoming eligible for their full benefits.
Unable to bridge this financial gap, some opted for the early retirement pension, despite the reduced payments, to avoid a disruption in their income stream after retiring.
Focus group interviews conducted by the National Pension Research Institute in July 2022 revealed that the primary reason cited by early retirement pension recipients for accepting the financial penalty was the need to cover living expenses. Job losses, business struggles, and deteriorating health conditions had left many without a steady income, forcing them to claim their pensions early as a means of maintaining their livelihood.
Other factors influencing the decision included concerns about longevity and fears of pension depletion, with some individuals reasoning that receiving a reduced pension sooner would be more financially advantageous than waiting for the full amount later in life.
The recent reform of the health insurance premium system, which lowered the income threshold for dependent coverage from 34 million won to 20 million won annually, may have also played a role. Individuals whose annual pension income exceeded the new threshold risked losing their dependent health insurance status, prompting some to opt for the early retirement pension, despite the reduction, to remain eligible for coverage.
The early retirement pension system was designed to provide income support for those who retire before reaching the official retirement age and face financial hardship until they become eligible for their full pension benefits.
However, financial experts caution against taking the early retirement pension option unless absolutely necessary, as the reduced payments over an extended lifetime can result in significant financial losses compared to waiting for the full pension amount.
M. H. Lee (mhlee@koreabizwire.com)
