"Decrease in Regional Subscribers and Increase in Voluntary Subscribers Due to COVID-19 ... Impact on National Pension Finances"

Decline in Births and Marriages, Increase in Deaths... Economic Uncertainty Persists
COVID-19 Impact Must Be Reflected in 5th National Pension Financial Calculation

National Pension Service / Photo by Asia Economy DB

[Asia Economy Reporter Jo In-kyung] An analysis has emerged that the COVID-19 situation continuing since 2020 has directly and indirectly affected the National Pension Service (NPS) finances. While marriages and births decreased, deaths increased, leading to a decline in NPS subscribers and increased volatility in investment returns.

On the 14th, Shin Seung-hee, a research fellow at the National Pension Research Institute, emphasized in the report titled "Changes in Population and Economic Conditions After COVID-19 and Their Impact on the Long-term Finances of the National Pension" that "it is necessary to appropriately reflect the changes in conditions caused by the COVID-19 shock in the financial projections of the National Pension."

According to the report, the number of marriages in South Korea in 2020, after the outbreak of COVID-19, was 214,000, a 10.7% decrease compared to 2019. In 2021, the provisional number was 193,000, down 9.8% from 2020. The number of births was 272,000 in 2020, a 10.0% decrease from 303,000 in 2019, and further declined by 4.3% in 2021 to 261,000 (provisional).

In contrast, deaths increased from 295,000 in 2019 to 305,000 in 2020 and 318,000 in 2021. The recent rapid increase in the elderly population has led to a continuous rise in the number of deaths.

The economic situation also worsened. According to a Bank of Korea report, the average annual economic growth rate for 2020?2021 was 1.6%, failing to recover to the 2.2% level of 2019 before the COVID-19 outbreak. Due to rising prices of raw materials such as crude oil and grains, the average annual consumer price inflation rate for 2020?2021 was 1.5%, higher than 0.4% in 2019.

Additionally, the wage growth rate improved from 0.5% in 2020 to 2.0% in 2021, and the employment rate also rose from 60.1% to 60.5% during the same period. However, uncertainties remain high due to the ongoing spread of infectious diseases domestically and internationally and situations such as the Ukraine crisis.

During this period, the number of National Pension subscribers decreased from 22.22 million in 2019 to 22.11 million in 2020. In particular, the number of regional subscribers sharply declined from 7.23 million in 2019 to 6.90 million in 2020 and 6.83 million in 2021.

The proportion of exemption from payment (those obligated to pay pension insurance premiums but not paying due to business suspension, unemployment, leave, etc.) which had been continuously decreasing before COVID-19, reversed to an upward trend from 45.3% in 2019 to 44.9% in 2020 and 49.2% in 2021. This was because worsening employment conditions due to COVID-19 led workplace subscribers to withdraw from regional subscription and maintain membership through voluntary subscription.

Volatility in National Pension investment returns also increased. The fund operation yield recovered from 9.7% in 2020 to 10.8% in 2021 but worsened to -2.7% in early 2022.

Moreover, COVID-19 may affect the mortality rate, disability, and retirement timing of National Pension subscribers. However, the report adds that it is difficult to clearly predict the extent and duration of COVID-19’s influence.

Research fellow Shin stated, "Since population, economy, and institutional conditions are important factors affecting National Pension finances, it is necessary to appropriately reflect not only the short-term changes caused by the COVID-19 shock but also the potential impacts from lingering effects in financial projections." He emphasized, "To this end, monitoring the progress of the COVID-19 pandemic and thoroughly reviewing its long-term impacts must be conducted."