Pension Contribution Discrepancies: 600,000 Seniors See Cuts in Basic Pension Despite Contributing Faithfully

A report reveals that nearly 600,000 seniors in South Korea have experienced reductions in their basic pension due to receiving National Pension benefits. 

A report reveals that nearly 600,000 seniors in South Korea have experienced reductions in their basic pension due to receiving National Pension benefits. This report highlights the impact of pension regulations and raises questions about fairness in pension policies.

In South Korea, approximately 600,000 seniors aged 65 and older from the lower 70% income bracket had their basic pensions reduced last year due to receiving National Pension benefits.

On the 11th, Kim Seon-min, a member of the National Assembly's Health and Welfare Committee from the Justice Party, released data from the Ministry of Health and Welfare on "the status of recipients receiving both basic and National Pension benefits." This report shows that with the rapid aging of the population and the increase in the number of seniors in the lower 70% income bracket, the number of basic pension recipients has been rising annually.

The number of basic pension recipients has increased from 5.66 million in 2020 to 6.51 million in 2023. Recipients of both basic and National Pension benefits have also grown from 2.38 million in 2020 to 3.18 million in 2023.

However, the basic pension system includes a "pension reduction mechanism linked to National Pension contributions," which means that receiving a certain amount of National Pension benefits results in a reduction of the basic pension.

As a result, the number of basic pension recipients experiencing reductions due to National Pension linkage reached nearly 600,000 in 2023, accounting for 9.08% of all basic pension recipients and 18.6% of those receiving both pensions.

The amount of reduction due to National Pension linkage amounted to nearly 50 billion won in 2023. On average, this translates to a reduction of about 83,226 won per person.

According to the Basic Pension Law, the amount of basic pension received by seniors who also receive National Pension benefits is calculated considering the National Pension amount and the "A-value" (the average of the last three years of income for all National Pension contributors). Generally, if the National Pension amount exceeds 150% of the basic pension standard amount, reductions are applied.

For example, if a senior receives more than 502,000 won per month in National Pension benefits (150% of the current basic pension standard amount of 334,814 won), their basic pension will be reduced.

Seniors with National Pension contributions exceeding 12 years will see their basic pension reduced by about 10,000 won for each additional year.

The introduction of this reduction rule aimed to ensure fairness across pension benefits. However, the complexity and the adverse effects on diligent National Pension contributors have led to ongoing debates about its fairness and impact on the public pension system.

Many experts recommend abolishing this system to avoid reducing basic pensions for those who have diligently paid into the National Pension.

The basic pension was established in July 2014, replacing the former basic old-age pension system. Initially, it provided a maximum of 200,000 won per month but has gradually increased, reaching a maximum of 300,000 won per month since 2021. This year, the maximum amount has been raised to 334,814 won per month for single households.

While basic pensions are available to those who meet the eligibility criteria without having to pay contributions, they must apply to receive them. If seniors fail to apply, they miss out on the benefits they could have received.

Recently, the National Pension system has proposed increasing contribution rates from 9% to 13% and raising the income replacement rate from 40% to 42%. This increase in contributions, coupled with an automatic adjustment based on the number of contributors, could lead to reduced benefits in the future due to population decline.

While National Pension benefits are funded through contributions, basic pensions are fully funded by government resources (taxes). The reduction in benefits for National Pension contributors, contrasted with rising basic pensions based solely on income, has led to dissatisfaction among contributors.

The complex interplay between National Pension contributions and basic pension benefits has led to significant reductions for many seniors, highlighting the need for a review of the pension linkage system. Ensuring fairness and transparency in pension policies remains a critical issue.