The South Korean government has unveiled proposals to help reform the country’s pension system, as an aging population combined with record-low birth rates threatens to deplete South Korea’s $578.7 billion National Pension Fund by 2057.
The country’s Ministry of Health and Welfare announced four proposals to maintain a balance between reinforcing recipients’ benefits and securing the fund’s stability, according to the Korea Herald.
“The national pension should be operated as long as the country exists,” Health and Welfare Minister Park Neung-hoo said at a press conference. “To make that possible, building the public’s trust in the national pension fund is important.”
The first proposal aims to maintain the current system with an income replacement rate set at 40% and insurance premiums at 9%. The basic pension for the elderly would be increased to 300,000 won ($265) per month in 2021.
The second proposal would only increase the basic pension to 400,000 won in 2022, leaving the income replacement rate and insurance premiums the same as the first. And the third and fourth plans focus on increasing the insurance premiums and income replacement rate at the same time.
Under the third option, insurance premiums would be raised to 12%, with the income replacement rate set at 45%, while the fourth plan would raise the premiums to 13% and set income replacement rate at 50%. The 300,000 won basic pension would remain the same as in the current system.
South Korea’s fertility rate is expected to fall to an all-time low this year, which creates several problems, including underfunded pensions, expanding debt, and economic decline. The average number of babies born per woman of reproductive age is due to be as low as 0.96, bringing it below one for the first time in history, according to a study commissioned by the Chosun Ilbo newspaper.
If the proposals are approved at next week’s cabinet meeting, they will be sent to the National Assembly by the end of December. The legislature is expected to proceed with the revision of the National Pensions Act in the second half of 2019.
And in a move to boost investment returns, the National Pension Fund said it would increase its ratio of risk assets, such as stocks and real estate, to 60% from 50%, and raise the ratio of overseas investment to about 45% from 30%, according to Reuters.