The highest income earner also applies the upper limit by 1.6 times… High income earners may suffer losses depending on the direction of reform
▲ Kim Yong-ha, Chairman of the Financial Calculation Committee, is giving a presentation on measures to improve the National Pension System at the National Pension Financial Calculation Committee public hearing held at COEX in Gangnam-gu, Seoul on the 1st of last month. (Newsis)
When subscribing to the national pension for 30 years and receiving pension for 25 years, the amount of pension received by the beneficiary was found to be 1.6 to 4.3 times the amount of insurance premium paid.
On the 20th, Nam In-soon, a member of the National Assembly Health and Welfare Committee and a member of the Democratic Party of Korea, commissioned the National Pension Service to analyze the profit ratio by income class of new recipients of this year’s national pension. According to the results, based on 30 years of subscription and 25 years of pension, the average income of 1 million won is It was expected that 4.3 times the amount of insurance premiums paid would be returned as pension. The cost of profit for the average earner (2.86 million won as of the end of 2022) was 2.2 times, and the cost of profit for the highest earner (more than 5.9 million won since July 2023) was 1.6 times. The same result was obtained in an analysis assuming a subscription period of 20 years.
Looking at the expected pension amount by average income during the subscription period, a person earning 1 million won is expected to receive 389,720 won per month if subscribed for 20 years and 482,780 won per month if subscribed for 30 years. Even if you subscribe for just 20 years, you will get close to the 40% income replacement rate designed based on 40 years of subscription. It was analyzed that a person earning 5 million won would receive 793,470 won per month if subscribed for 20 years, and 1,186,530 won if subscribed for 30 years. The pension amount itself is higher than that of low-income earners, but the income replacement rate is low. It is only 23.7% when subscribed for 30 years.
The national pension benefits all subscribers regardless of their average income. However, the degree of profit increases as income decreases. This is because of the income redistribution function of the national pension. The income replacement rate of 40% under the National Pension Act, assuming 40 years of subscription, is 20% of the income redistribution portion (A benefit) based on the average income of all subscribers (A value) and 20% of the income redistribution portion (A benefit) based on the average income of all subscribers (B value). The income proportional portion (B benefit) is divided into 20%.
Last year’s A value was 2.86 million won. For the highest earner (B value 5.9 million won) to whom the insurance premium ceiling is applied, the standard income is 4.38 million won, which is the average of A and B values. The income that serves as the basis for calculating the pension amount is lower than your own income. On the other hand, the minimum income earner (B value 1 million won) will have a standard income of 1.93 million won, which is higher than his or her own income. The difference in profit ratio and income replacement rate according to income class is also due to this formula.
Fortunately, the insurance premium rate (9%) is currently low, so even if your income is high, you do not suffer a loss. The profit ratio of the highest earner, 1.6 times, is also overwhelmingly ‘cost-effective’ compared to private financial products.
The key is the amount of insurance premium rate increase due to future national pension system reform. According to the Ministry of Health and Welfare, if the insurance premium rate exceeds 13%, assuming that the current life expectancy and benefit formula is maintained, the profit ratio for the highest earners will fall below 1. You will receive less money than you paid. To prevent this situation and increase the insurance premium rate, the proportion of B benefits must be expanded in the benefit formula.
The Ministry of Health and Welfare plans to announce the ‘5th National Pension Comprehensive Operation Plan’ next week. However, there is also speculation that ‘numbers’ such as the insurance premium rate increase plan will be omitted from the comprehensive operation plan due to the schedule of the general election of the National Assembly next year.