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KMID : 1124020110270010055
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Korean Social Security Studies
2011 Volume.27 No. 1 p.55 ~ p.88
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The Impact of National Pension Scheme on the Retirement Decision of Mid-old age Male Salaried Workers
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Yi Gi-Joo
Seok Jae-Eun
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Abstract
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This paper aims to identify the impacts of the National Pension Scheme on retirement decision of mid-old-age male salaried workers. This study used the first and second-wave data from the Korean Retirement and Income Study, analyzed male salaried workers aged 55-64 as national pension insureds during the first year of the Study (2005), and identified the retirement status in the second year (2007) to analyze the factors influencing retirement decision and to secure more accurate evaluation of impacts of National Pension on retirement decision. In order to analyze impacts of the National Pension Scheme on retirement, this study applied variables such as ‘Peak Value’, meaning the difference of expected lifetime pension wealth by retirement point of time and ‘Option Value’, considering differences between expected pension wealth by retirement point of time and earned income in addition to variables that were mostly used in the previous studies conducted in Korea such as ‘entitlement to receive pensions’ and ‘accrual of expected pension wealth’ upon extension of one year for retirement. Based on this, the advantages and disadvantages of lifetime pension income by retirement point of time were considered while a more elaborate analytic model which can reflect rational decision making and consider dynamic substitute relations between earned income and pension income was constructed to analyze national income factors influencing retirement decision. Based on the analysis, when biographical features, needs for income, substitute income, and the quality of the current work were controlled, the accrual of expected pension wealth and Peak Value were not significant while option value negatively affected retirement. When Option Value increased by one million Won, the probability for retirement decreased by 0.4%. This can be interpreted that a decision-making process considering dynamic substitute relations between earned income and pension income is more likely to take place than decision making that considers the advantages and disadvantages of expected pension wealth when deciding retirement because in Korea, the pension system is still yet to mature. This means that currently, if there is policy support enabling mid-old-age people to maintain earned income, they will choose to delay retirement. However, this also suggests that in the future when the level of pension income and the size of expected pension wealth increase, if relations between the pension system and labor supply are not more complementary than substitute, the pension system will hasten retirement, resulting in negative impacts on labor supply.
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KEYWORD
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National Pension Scheme, Retirement Decision, Accrual, Peak Value, Option Value, Korean Retirement and Income Study
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