“The National Pension Reimbursement of 13 million won increased to 84 million won”… ‘Credit’ that you don’t get because you don’t know [언제까지 직장인]

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As the 100-year-old era has become a reality, worrying about old age after retirement is emerging as one of the major concerns of office workers.

According to the ‘2021 Social Survey Results’ announced by the National Statistical Office recently, Korea is expected to enter a super-aged society in which the proportion of the elderly population (20.6%) is more than 20% by 2025. Nevertheless, one in three Koreans over the age of 19 is vulnerable to longevity risks. Fortunately, it is not enough to prepare for old age, but about 60% of the people are preparing for old age with the National Pension.

Finance experts said, “In order to have economic power for 30 to 40 years even after retirement, you need a fixed monthly pension in addition to your wealth. The National Pension Service is one of the representative social security systems, and it is worthwhile to actively utilize the ‘credit’ system, which is not well known.”

Do you know ‘birth/military service/unemployment credit’?

In order to resolve the blind spots of the National Pension Service, there is the ‘Credit Three Musketeers System’ for maternity, military service, and unemployment credit that additionally recognizes the subscription period.

First, the maternity credit is a system that recognizes an additional subscription period at the time of receiving the National Pension if a second child or more is born (adopted) after January 1, 2008.

If there are two children, 12 months is additionally recognized, 3 children are 30 months, 4 children are 48 months, and if there are 5 or more children, the subscription period is up to 50 months. It was introduced with the purpose of encouraging childbirth in preparation for the low fertility and aging population, expanding the opportunities for female members to obtain pension entitlements, and reducing the blind spots for pensions. As of May 2020, the average monthly pension amount increased by maternity credit was about 37,000 won.

Second, military service credit is a system that recognizes 6 months of National Pension subscription period for those who enlisted after January 1, 2008 and fulfilled their military service obligations.

This applies not only to active duty soldiers, but also to conversion service members, full-time reserve service members, and social service personnel. In addition, international cooperation volunteers and public service personnel before the revision of the Military Service Act are also eligible. However, credit will be recognized only if you enlisted on or after January 1, 2008 and fulfill your military service obligations.

In addition, if you extend the period by paying the pension premiums during military service later, the amount of your pension will also increase. Those who have served in the military after January 1, 1988 can apply regardless of active duty or short-term service. The Ministry of Health and Welfare or the National Pension Service does not directly inform the beneficiary, so you have to apply yourself.

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Lastly, the unemployment credit is a system in which the state subsidizes 75% of insurance premiums when a person receiving job-seeking benefits wishes to join the National Pension Service. Park Yong-soo (62), who became the 6 millionth national pension beneficiary. He joined since 1988 and paid 86.58 million won for a total of 31 years and 3 months, receiving an additional 8 months of unemployment credit period of 9020 won a month.

In particular, those who benefit the most from the credit system are those who receive the minimum subscription period for the National Pension through this system by adding an additional subscription period. You must complete at least 120 months to receive the old-age pension from the National Pension. For example, in the case of a recognized income of 700,000 won, if you pay the national pension for 115 months, you will receive a lump-sum refund of about 13.3 million won, including the money you paid for less than the minimum subscription period and a small amount of interest. However, if you use the credit system to complete 120 months, you can receive a national pension of 350,000 won each month. Assuming you receive the National Pension for 20 years from the age of 65 to 85, the amount will be 84 million won, which is 6 times the amount received.

On the other hand, for those who have received the National Pension as a lump-sum refund due to personal circumstances in the past, it may be a good idea to use the refund system. This is because the ‘number of months of offsetting’, which is the period it takes to recover the principal, is close to 50 months, so it is counted as ‘value-for-money’.

In other words, if I start the annuity and survive about 4 years and 2 months (50 months), I can get back all the principal I put in. Returning is actually quite advantageous as the retroactive replacement rate of the past is still applied. If the number of offsetting months is around 4 years, the simple calculation is that I can receive 10 times more than the money I paid if I survived for the next 40 years.

One of the things to keep in mind.

If you have income such as business or wage income at the time you receive your pension, it is wise to apply for a postponement rather than receiving it right away. This is because the pension is reduced by 1.5 million won if the monthly average income exceeds 2.54 million won.

When the National Pension Fund is exhausted, the method of accumulation → levy is likely to change.”

In the early days of the National Pension System, the basic condition of paying premiums for 10 years or longer was to receive a pension from the age of 62. However, as the receiving age has been raised step by step, the current young generation cannot receive the pension until they turn 65. The insurance premium is 9% of monthly income. If you are a member of the company, you pay half and half with the company (4.5% each), and the income replacement rate is set at 40%. The replacement rate refers to the ratio of the national pension in retirement to the average lifetime income.

The problem is that the National Pension system is operated under a ‘low burden, high salary’ structure where you pay less and receive more. As a result, depletion of funds is taken for granted. The National Assembly Budget Office, the Ministry of Strategy and Finance, and the Ministry of Health and Welfare estimate that the accumulated reserves will increase to more than 1,000 trillion won by 2040, but will be quickly exhausted and will be exhausted by 2055.

In response, the Korea Economic Research Institute, affiliated with the Federation of Korean Industries, said, “If the current national pension system is maintained, the national pension will not be received at all after 1990, when the eligibility to receive the national pension in 2055 (begins 65 years old from 2033). “If the national pension is to continue to be paid, future generations will have to bear an excessive burden due to a surge in insurance premium rates,” he warned.

Then, if the accumulated funds are depleted, will the National Pension really not be available?

In this regard, the Ministry of Health and Welfare emphasizes that “the pension payment is a matter of national survival, and even if the low birth rate, the biggest reason for fund exhaustion, continues, the state will take responsibility for providing it.” For reference, the Korea Pension Service earned 91.2 trillion won in profit last year, the highest ever in fund management. The profits are equivalent to 3.1 years’ worth of annual pension payments (29.1 trillion won) and 1.7 years’ worth of insurance premiums (53.5 trillion won).

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Combining the above, it seems that the fear of not receiving a single penny from the national pension since the 1990s seems to be negligible. However, it is highly likely that reforms that change the current profit ratio structure will come. Increasing the insurance premium rate and delaying the retirement age are being discussed as strong ideas.

What will happen if pension reform is abandoned as it is?

When the fund is exhausted, it is highly likely that the pension will change from a ‘accrual method’ to a ‘imposition method’. If the current saving method is to collect the money paid in the past and pay the annuity for that year, the charging method is to use the money paid for that year to pay the pension for that year.

Many European countries, such as Germany and Sweden, which introduced pension systems a long time ago, initially operated as a deposit method as in Korea, but due to the increase in the number of beneficiaries and rapid aging, the pension is paid by changing it to a charging method.

So, do you think that the national pension is not enough to prepare for old age? It’s a ‘half right and half wrong’ idea.

Why? Although the National Pension alone cannot provide sufficient preparation for old age, it is an important means of preparing for old age.

In fact, as of March of this year, 5.92 million beneficiaries are receiving a monthly pension of 2.6 trillion won. Compared to April 2020, when the number exceeded 5 million, the number of recipients increased by 880,000 (18%) and the amount increased by 600 billion won (31%), respectively.

The beneficiaries were 4.96 million people (84%) of the old-age pension, 892,000 people (15%) of the survivors’ pension, and 69,000 people (1%) of the disability pension.

There were 487,728 beneficiaries of 1 million won or more per month, and 2,994 people who received 2 million won or more. There were 1.1 million beneficiaries who had joined for more than 20 years, and their average pension was 970,000 won.

The combined maximum pension for a married couple was 4.46 million won per month, and the maximum individual pension was analyzed to be 2.46 million won. The number of beneficiaries aged 62 and over increased by 920,000 (20%) from 4.64 million to 5.56 million during the same period. The maximum cumulative pension payment was 337.05 million won, the longest period of payment was 398 months, and the oldest was 109 years old.

Finance experts emphasize, “The National Pension can be just pocket money or a strong support for old age, depending on how you use various systems such as the deferred pension, additional payment, and return system along with the national pension credit system.”

[류영상 매경닷컴 기자]
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