Retirement law will give boost to pension system
The plan to raise Korea’s retirement age to 60 will keep baby-boomers on the job longer - and will also have a positive impact on the National Pension Service.
A bill to make 60 the statutory retirement age is speeding through the National Assembly with support of both the ruling and opposition parties. Both used the issue as a campaign pledge in last December’s presidential election. Currently a retirement age of 60 is a mere recommendation for private companies, which is widely avoided.
Korea’s baby-boomers are struggling because companies retire them years before their national pensions start paying out at the age of 60 or 61. Although the average retirement age of local companies is 55, Korean workers consider it to be 48.8, according to a survey by an employment portal Job Korea. The actual retirement age at small and medium enterprises was 48.2 years old.
(The age of payout for pensions was 60 until this year, when it was raised to 61. It will rise by one year every five years from now: In 2018 it will be 62, in 2023 it will be 63, etc.)
The years between being retired and getting pension payments are called the “crevasse” period. By filling in that economically inactive crevasse, the whole structure of the country’s pension system could be transformed.
For example, a 48-year-old salary man surnamed Shin has never skipped a monthly payment to his national pensions since 1988, when the pension service was introduced. Shin, who asks his full name not be disclosed, puts in 175,050 won ($157) every month and his company matches that amount.
Under the current system, Shin will retire in five years - and he and his company will stop paying into his pension account. Once he reaches 64, Shin will receive 1.14 million won a month from the pension scheme.
But if he continues to work and pay into his pension until the age of 60 - an additional seven years - his monthly payout will be raised by 22 percent to 1.4 million won.
As of February, a total of 1.01 million people in their 50s have been exempted from paying into their pension accounts because they are unemployed and making nothing.
A 31-year-old woman surnamed Shin first signed up for the pension program in 2005 and has been paying in 94,500 won every month. Under the current retirement plan in which she retires at 53 and stops paying in, Shin will receive 675,000 won a month once she reaches 65. If she is allowed to work until 60, the 675,000 won will rise to 812,000 won.
With extended working years, the number of seniors drawing early-pension benefits is also expected to decline. The early pension-benefit plan allows a person to draw their pension at age 56, but the payout amount is reduced by 30 percent.
Last year, as the number of baby-boomers born between 1955 and 1963 increased, the number choosing early pensions was 323,238, more than double the 150,973 recorded in 2008.
“If people can maintain their jobs until 60, there will be no reason for them to claim early pensions at 58 with discounted pension premiums,” said Yun Seok-myung, director of the pension system center at the Korea Institute for Health and Social Affairs.
Pension experts point out that the gap between when a person retires and becomes eligible for pensions under the current system is much wider than in most developed nations such as Germany and Japan.
“Many foreign pension experts express their surprise when told Koreans on average retire at 53 and start receiving pensions at 61, because of the wide time gap,” noted the director.
“The new retirement plan will establish an environment in which seniors can be at ease knowing they will soon be eligible for pensions not long after their retirement,” said Tchoe Byong-ho, director at the state-run institute.
By Shin Sung-sik, Kang Jin-kyu [email@example.com]