This paper aims to present a national pension system model which is appropriate for Korea’s conditions by carefully examining pension schemes of foreign countries and analyzing the socio-economic effect of long-term forecasts on pension finance.
In Korea, the elderly population is expected to increase, along with the number of wage-paid and salaried workers. With the development of society, the traditional family system in which families care for their elders is losing traction. Therefore, it is necessary to offer a national pension system as an institutional device to ensure the stability of life for the older members of society.
However, given the country’s social and economic conditions and in consideration of the history of economically advanced countries, it would be desirable to implement the national pension system in a way that minimizes shock to national economic development, and promotes long-term stability of pension finance. This study suggests the following:
The national pension system should be implemented for employees of business with more than 10 employees (about 4.4 million nationwide), and should be gradually expanded to the entire population. The optimal situation is that 10 percent of wages should be contributed to the pension. However, considering the contribution burden for wage-paid workers and financial capabilities of households and companies, the amount of contribution should start at 2.5 percent of income and be raised by phases to 10 percent by 2000. Pension benefits should amount to 40 to 80 percent of the wage that a pension holder makes by the retirement age of 60, so that his or her basic livelihood is guaranteed. In case of disability, or death due to accident or disease, the pension should be used to support the livelihood of the pension holder or their bereaved family. If a pension holder leaves the pension system, a lump sum refund at current savings interest rates should be given within a year, to relieve the financial distress of the pension holder during his or her unemployment.
As for the current severance payment system, the legally set contribution rate of 8.3 percent should be reduced to the company’s contribution rates (1.5 percent to six percent), considering how contribution rates impact growth and employment demand of companies. The severance system should be gradually liberalized so that severance can be paid as a lump sum or replaced with a pension scheme. Short-term measures for seniors, which are expected from the implementation of a pension system, should be increased within the available limit based on the Welfare of the Aged Act.
The analysis of the effects that the adoption of a national pension system would have on the national economy suggests that it will have a minimal negative impact on the labor market but significantly increase long-term financial savings and redistribute income across different classes, contributing to the socio-economic development of Korea.
It takes at least 20 years for a pension scheme to mature, so it is desirable to adopt the system as soon as possible. However, given that the relevant administrative structure needs to be expanded, we suggest that a national pension system should begin in1988.
국민연금제도의 기본구상과 경제사회적 효과분석(Basic framework of the national pension system and its socio-economic effect)
|Series Title; No||정책연구시리즈 / 86-08|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Social Development < Social Welfare|
|Holding||KDI; KDI School|