Retirement pensions, the National Pension Fund is eyeing closely... The role of private pensions is expected to expand

Some analyses suggest that based on institutional improvements and increased operational yields, retirement pensions are expected to surpass the scale of the National Pension Fund around 2050, and the income security function of private pensions for the elderly may also be significantly enhanced compared to now. Considering that South Korea, which has entered a super-aged society, cannot rely solely on public pensions to adequately cover late-life living expenses, the issues of expanding the roles of retirement pensions and personal pensions, and building a multi-layered pension system, have once again become prominent.

Senior Research Fellow Kang Sung-ho of the Insurance Research Institute made this outlook at a joint policy seminar hosted by the Korea Institute of Finance and the Korean Financial Society at the Bank Hall in central Seoul on the 14th. He pointed out that the poverty rate among the elderly in Korea is close to 40%, which is relatively high compared to major countries, and explained that relying solely on public pensions such as the National Pension is insufficient to ensure adequate income replacement rates. Income replacement rate is an indicator of how much of pre-retirement income can be replaced by pensions after retirement.

Currently, the income replacement rate of private pensions remains at about 5%. Specifically, retirement pensions account for 2.1%, and personal pensions for 3.12%. However, researcher Kang believes that if the number of insured persons further increases and if pension payments stabilize through monthly installments rather than lump-sum withdrawals, the income replacement rate from retirement pensions alone could rise to 8.3%. Building on this, if institutional improvements and investment yield increases are achieved, the overall income replacement rate of private pensions, including both retirement and personal pensions, could expand to as high as 25%.

The key lies in designing a system that links pensions from the enrollment stage to the payout stage. Kang emphasized that to achieve a combined income replacement rate of 70% from public and private pensions, it is not only necessary to expand coverage but also to implement policies that encourage people to continue receiving pensions in the form of periodic payments after actual retirement. Previously, many criticisms pointed out that although the scale of domestic retirement pensions has rapidly expanded, their function as a mechanism for income security in old age has not been fully realized due to a high proportion of lump-sum withdrawals.

The seminar also discussed asset formation at different life cycle stages and asset management for the very elderly. Senior Research Fellow Park Sung-wook of the Korea Institute of Finance analyzed the asset gap among newlywed young families, noting that owning a home benefits asset formation across all social strata. However, he also diagnosed that while living in the capital region may present opportunities for upper-class youth to increase their assets, it also worsens housing burdens for lower-income groups and exacerbates inequality. Based on this, he suggested that youth homeownership support policies should be designed around actual residence and that policies such as public rental housing to reduce housing costs should be implemented simultaneously in the capital region. Professor Min In-jip of Kyung Hee University’s Economics Department analyzed how cognitive decline among the elderly affects their asset liquidity preferences, emphasizing the necessity of institutional safety devices such as establishing dementia trusts. This trend indicates that future pension reform discussions may not only focus on adjustments to premiums and benefits but will expand toward a broader scope covering asset formation among youth and asset protection for the very elderly.