'How Much Will the National Pension Be in 70 Years?'... National Pension Service to Revise Financial Projection Method

National Pension Service Begins Improvement of Economic Forecasting Model
"From 5 Years to 2 Years, Enhancing Internal Capabilities to Match Faster Cycle"

The National Pension Service (NPS) is advancing the method of financial projection for the National Pension. This is to enhance the accuracy of its own models in line with the shortening cycle of National Pension financial calculations.

According to the NPS on the 16th, the National Pension Research Institute has begun building and improving the ‘economic projection model’ necessary for financial projections. The main goal is to increase the accuracy of the models held by the NPS and eliminate conflicts among various variables. The old calculation methods previously used will be compared with the latest research to identify weaknesses and make corrections.

Elderly people walking on the street near Tapgol Park in Jongno-gu, Seoul. This photo is unrelated to the article content. Photo by Jinhyung Kang aymsdream@

The National Pension financial projection is a system that forecasts how the National Pension finances will change over the next 70 years. It was established to enhance the sustainability of the pension fund and improve the system. Through these projections, the timing of the fund’s deficit transition or depletion year can also be identified. Since its inception in 2003, calculations have been conducted every five years in accordance with Statistics Korea’s ‘Future Population Projections.’

The biggest change due to the improvement work is in labor sector indicators. Financial projections typically reflect South Korea’s economic growth rate (GDP), economic activity participation rate, inflation rate, wage growth rate, interest rates, and more, several decades into the future. Various data are used for accurate predictions, and in the labor sector, ‘working hours’ have mainly been utilized. However, since this includes non-regular and part-time workers, it has been difficult to confirm overall trends, and analyses have pointed out that volatility is too high depending on economic booms and recessions. Therefore, the use of ‘employed persons’ data, which has less economic volatility, is being considered.

From 5 Years to 2 Years, Accelerated Financial Calculation Cycle

The NPS started the improvement work because the financial calculation cycle has accelerated. Statistics Korea announced at the end of last year that it would conduct population projections every two years due to rapid changes in the population structure, such as the total fertility rate dropping to 0.78. The population projection originally scheduled for 2026 was moved up to this year. Consequently, the National Pension financial projections linked to population projections must also be conducted every two years. There is also a possibility that financial calculations may be conducted flexibly if necessary.

The problem lies in the method of National Pension financial projection. Since financial projection work involves complex calculations predicting the distant future, it has been outsourced to the Korea Development Institute (KDI). This process requires various administrative procedures, making it tight to complete within two years. Therefore, conducting projections internally has become inevitable. The NPS explained that it is essential to improve the models because accurate analysis is difficult with the old models.

An official from the Research Institute said, “The cycle has shortened from five years to two years, but we cannot always outsource to KDI,” adding, “The financial projection committee is held when calculations are done, and to meet the standards required there, we judged that the model must be improved.”

Meanwhile, related ministries are also improving their internally held models in line with population structure and economic conditions. Statistics Korea, facing an increase in single-person households due to low birth rates and non-marriage, began improving the future household projection model in April, which predicts household situations 30 years ahead. The Ministry of Health and Welfare launched the ‘Pension Actuarial Committee’ in May to review the financial projection model to reflect institutional changes.