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KMID : 1124020040200020081
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Korean Social Security Studies
2004 Volume.20 No. 2 p.81 ~ p.101
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The Essence of the Retirement Financing and the Role of the Three-Tiered Old Age Security System
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Synn Jong-Wook
Lee Jung-Ho
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Abstract
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As both public and private pension scheme move from Defined Benefit(DB) to Defined Contribution(DC), there have been assertions that we should focus more on the retirement stage than the accumulation stage. Also, multi-tier pension scheme which has been advocated by Worldbank for the first time in the mid of 1990s has drawn much attention and now, has become a worldwide trend. Nevertheless, despite the fact that three-tired pension system has taken root in Korea as well as in the world, it stopped short of discussing in depth how those three tiers should be connected with each other and also, what their individual function should be. In this paper, from the viewpoint of the individual who is in need of pension, we first tried to find out the meaning of each scheme under the assumption that the essence of the retirement financing includes both financial risk management and investment efficiency. And after that, based on the outcome, we made some suggestions about what we have to consider in order to establish a desirable three-tiered pension system. The result reveals that all three tiers are prominent in terms of investment efficiency compared to regular saving vehicles. In the meantime, in terms of retirement risk management, most of the financial risks in retirement are shown to be more or less covered by the combination of those three tiers and this manifests a positive aspect of multi-tier pension system in Korea. However, all three tiers are shown to be vulnerable to income-replacement risk, and considering the investment efficiency these tires enjoy, it is very likely that the retirement income gap between the people who are covered by the pension system and who are not widens.
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KEYWORD
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retirement, risk management, financing, old age security, pension
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