MINISTRY OF HEALTH AND WELFARE::Pension scheme strives to ensure better future

[MINISTRY OF HEALTH AND WELFARE]Pension scheme strives to ensure better future Because of our prolonged life span, retirement is becoming a significant proportion of our lives. Yet, what Koreans do in preparation for the life after retirement did not change much from the traditional way of raising children and expecting them to support their parents in return. So, the National Pension Corp., a management agency of the national pension, has no easy task ahead - to prepare Korea for the future when more and more elderly people will need the support of younger people, while fewer and fewer people will be there to provide it. The introduction of the National Pension Scheme in 1988 and the compulsory subscription to it for Koreans between 18 to 60 years old in 2003 were presented as one of the most significant steps toward a welfare state in Korea.

Customers consult Korean National Pension Corp. at its office in Seoul. "The program will tighten the nation's loose social safety net for tough times like now and set the groundwork of an advanced welfare state, in which everybody could lead a financially stable life through his or her lifetime," the first president of NPC Cha Heung-bong had boasted. However, the national pension has been a subject of mounting public concerns which sometimes grew into anger and resentment. Behind those concerns has been a widespread distrust on the long-term sustainability of the pension fund. In fact, experts have warned that without major reforms the pension fund will be completely drained by 2042, citing the facts that the Korean pension system was initially designed to provide high benefits against low contribution level and it will face future challenges of rapid increase in the elderly population, coupled with the slim working age population due to the low fertility rates. Korea officially became an aging society in 2000 when people aged over 65 made up 7.2 percent of the population. However, the nation is forecast to become a super-aged society by 2026, when the elderly population will account for more than 20 percent of the total. In 2003, the nation's fertility rate stood at 1.19 per woman, the lowest level compared to other members of the Organization for Economic Cooperation and Development that have long been struggling to cope with a chronic problem of a low fertility rate. While agreeing that grave challenges are ahead for the national pension scheme, the NPC officials strongly believe that the ongoing talks on pension reform will lead to stabilization of pension funds, prevent the fund drainage a half century away and help the NPC to take its firm roots as the centerpiece of Korea's social security net. Under the measures the government has drawn up so far, the pension eligibility age will be gradually raised to reach 65 in 2033. The valuation of financial equilibrium, which was first introduced in 2003, will be made every five years to adjust contribution and benefit level appropriately and maintain the long-term balance of the pension fund. The income replacement rate which represents the money the old-age people will receive from the pension fund will have to be gradually lowered to around 50 percent and the contribution rate will be increased by 1.38 percent every five years from 2010 until reaching 15.9 percent in 2030. As the state-run compulsory pension that plans for the decades ahead, the public support and trust is crucial. But most Koreans seem to be unaware of the benefits and merits of the national pension scheme, officials say. According to the agency's data, the agency has reported an average annual profit rate of around 10 percent, higher than any other kind of financial product available today. In 2000, the World Bank has rated the Korean pension fund as one of the most successful cases of public fund operation among 22 countries in the world. Adding to that, the pension amount is determined after recalculating the income the subscriber earned during the insured period as well as the inflation rate and the rise in living expenses. Also, since the national pensions are vouched for by the government, they are much more reliable than any private-run funds even when economic uncertainty is high. NPC officials, among others, stress that the national pension scheme will prove to be particularly instrumental in Korean society as it guarantees regular incomes for retired senior citizens. As of the end of last year, the number of the insured stands at 1.7 million with over 55 percent of them individually insured and 44 percent workplace-based insured people. Currently, the workplace-based insured people pay 9 percent of their income to the pension fund while individually insured persons pay 8 percent. From July this year, the rate is expected to rise to the same 9 percent of their reported income. Among the 9 percent contributions by workplace-based insured people, the employers are required to cover half. (milaya@heraldm.com)