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KMID : 1124020160320010001
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Korean Social Security Studies
2016 Volume.32 No. 1 p.1 ~ p.32
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The Analysis of the Effect of Retorement Age Extension on the National Pension Benefits and its Financing
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Kim Hon-Soo
Kim Won-Shik
Kim Hyung-Su
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Abstract
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This paper analyzes the effects of the retirement age extension (RAE) (a legislation passed by National Assembly in April 2013) on benefits to workers and the National Pension account. Our findings suggest that if both the RAE and a salary peak system (SPS) are implemented, pension benefit decreases, compared to when only RAE is implemented, as SPS lowers the average lifetime monthly income ("B-value") of most salary workers. Therefore, it is necessary to find a way to compensate for the lower benefits that workers receive. For example, similar to the OASDI program in the United States, we can consider excluding the lowest 3-5 yearly incomes from the B-value calculation. In addition, with RAE, the contributions to the National Pension will exceed benefit payments until 2035, after which payments will be larger. While there are still limitations in making accurate projections, the fund is expected to be depleted by 2060, consistent with 2013 Long-Term Actuarial Projection of the National Pension. The retirement age extension will strengthen the National Pension system.
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KEYWORD
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The National Pension, Retirement age extension, Salary peak system, Finance of the National Pension
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