National Pension Starting at Age 65... 'Pay Until Age 64'

[Asia Economy Reporter Lee Chun-hee] A report from a national research institute has emerged, highlighting the need to raise the mandatory enrollment upper age limit for the National Pension from the current 59 years to 64 years to align it with the pension benefit commencement age. Although the pension benefit starting age is gradually being delayed to 65 years by 2033, the mandatory enrollment age remains at 59, causing gaps in enrollment and income discontinuity, thus making adjustment necessary.

The Korea Institute for Health and Social Affairs (KIHASA) recently stated in its report titled "A Study on the Appropriateness of Extending the Upper Age Limit for National Pension Enrollment" that "while the pension benefit commencement age continues to be extended, the enrollment upper age limit remains fixed at 59, creating a gap between the end of mandatory enrollment and the start of pension benefits," and emphasized the need to assess the possibility of extending the enrollment upper age limit.

KIHASA pointed out that this situation causes a sharp income discontinuity between retirement and pension benefit commencement, which is a major reason why older adults stay longer in the labor market to sustain their livelihoods. They stressed, "Excluding mandatory enrollment in the National Pension after age 59 violates the basic principle of public pensions, where benefits begin immediately upon enrollment termination."

In this report, KIHASA utilized raw data from the Statistics Korea Economic Activity Population Survey by employment type and the supplementary survey on older adults, as well as the 22nd Korean Labor Panel individual and occupational history data, to analyze the economic activity participation status and characteristics of the 60-64 age group excluded from mandatory enrollment, along with the characteristics of pension recipients, through a time-series comparison.

According to the analysis, the economic activity participation rate of the elderly population aged 60 and above has significantly increased over the past decade. The increase was even more pronounced in higher age groups. Among employed persons aged 60-64, the proportion of regular wage workers increased nearly threefold from 11.5% in 2005 to 33.3% in 2020.

The proportion of part-time workers working less than 15 hours per week slightly increased annually among non-regular workers but showed a decreasing trend among regular workers. Additionally, both pension recipients and non-recipients expressed a desire to continue working in the future "to sustain their livelihoods."

Based on these results, KIHASA pointed out, "It is necessary to more precisely observe the labor market participation characteristics of the 60-64 elderly group and consider the possibility of extending the enrollment upper age limit."

Lee Da-mi, a senior researcher at KIHASA who led the study, emphasized the need to raise the mandatory enrollment age, stating, "Examining the economic activity participation status of older adults revealed that the scale of those who could extend enrollment is increasing recently, and we identified types within the elderly group who have already experienced the gap between mandatory enrollment and benefit commencement but still have the capacity to enroll."

She also added, "Considering the ease of income verification, income levels, and insurance premium burdens comprehensively, gradually extending the enrollment upper age limit for wage workers aged 60 and above could be the most effective measure at this point."

The controversy surrounding the mandatory enrollment age for the National Pension has been ongoing. In August 2018, the National Pension System Development Committee proposed adjusting the mandatory enrollment age to 64 by 2033 to align with the pension benefit commencement age as one of the enrollment system improvement measures, but the government did not accept this proposal, and it was ultimately abandoned.

Civil society organizations related to pensions, such as the Public Pension Strengthening National Action (Pension Action), also suggested in 2015 that the mandatory enrollment upper age limit should be gradually raised in line with the pension benefit commencement age. As employment ages are gradually delayed, it is rare to complete the maximum 40 years of National Pension enrollment, so raising the enrollment upper age limit is necessary. However, they added that it should first apply to workplace subscribers considering opposition from regional subscribers.

Looking at cases in other advanced countries, most link the pension benefit age and enrollment upper age limit, with the enrollment upper age limit often higher than the pension benefit age. Germany (employee pension), Sweden (NDC pension), and Canada (CPP) have enrollment upper age limits below 65 or 70 years, but the benefit commencement age is set at 65. The United States (OASDI) has no separate enrollment upper age limit and sets the pension benefit commencement age at 66.