This research evaluates the current status of the severance pay system and the National Pension Scheme (NPS), which are central to the retirement income security system of South Korea, and discusses future directions for each system so that Korea can establish an advanced welfare structure.
The National Pension Scheme was introduced as Korea’s basic social security system. The financial resources of the national pension system consists of profits from accumulative finance management, payments to the National Treasury, and withdrawals from the users and employees. On the other hand, the severance pay scheme is regulated by the legal system. When the system was first ratified in 1961, it only applied to businesses with more than 30 employees. After 1989, it was expanded to businesses with more five employees. As for the severance pay scheme, the payment ratio of severance pay to average total wage is determined based on a calculation of severance pay and accumulative rate by years of service.
The NPS and the severance pay scheme are similar in their goals: retirement income security. However, the nature and effects of each system are different due to their establishment details and political motivations. Therefore, the political discussion about the retirement security of retired workers should be addressed comprehensively, based on the entire retirement income security system. In other words, the future direction of Korean retirement income insurance policy should focus on ensuring adequate retirement income for senior citizens after considering the sustenance mechanism of each level of support, such as pension, savings, and severance payments.
Finally, improvement plans to develop Korean retirement income security system into a more progressive welfare system are as follows: First, the NPS is unstable due to the imbalance between contribution, salary, and benefits. Therefore, the government must implement plans to maintain the integrity of pension finance and resolve the disparity between supply and demand by readjusting the contribution-benefit structure of pension finance. Second, the public-private insurance market has not yet developed, and the country's severance pay scheme must act as a private pension scheme and unemployment benefit. However, in the future, the current retirement allowances (which are treated as lump-sum payments) should be divided into two different systems, the common (unemployment) insurance system and the corporate pension. Finally, despite the similarity of their roles, the NPS and the severance pay system were each independently planned and developed. Therefore, there is barely any connection between the two. The discussion on Korea’s future retirement income security system will be reviewed within the framework of a three-tier income security system of savings, private pensions, and national pensions. Effort must be spent in strengthening the relationship between the systems.
노후소득보장제도의 현황 및 과제(The current situation of the retirement income security system)
|Series Title; No||정책연구시리즈 / 93-22|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Social Development < Social Welfare|
|Holding||KDI; KDI School|