Recipients Earning Over 2.86 Million KRW Monthly Last Year
Application of 'Employed Pension Reduction System'
2.03% of All Old-Age Pension Recipients
It has been revealed that more than 110,000 National Pension recipients who earned over 2.86 million KRW per month through reemployment or other work after retirement last year had their pension amounts reduced.
According to data titled 'Status of Old-Age Pension Application Based on Income Activities' received by Rep. Choi Hye-young (Democratic Party) of the National Assembly's Health and Welfare Committee from the National Pension Service on the 26th, 110,799 old-age pension recipients had their pensions cut last year because their other income earned through work activities after retirement (earned income or income after deducting necessary expenses) exceeded the so-called 'A value.' This accounts for 2.03% of the total 5,447,086 old-age pension recipients. The total amount of pension reductions these individuals faced last year was 216.778 billion KRW.
The old-age pension refers to the general form of the National Pension received when the subscription period exceeds 10 years (120 months) and the recipient reaches the pensionable age. The reduction threshold, called the A value, is the average monthly income over three years of all National Pension subscribers; in 2023, the A value was 2,861,091 KRW. Under the current National Pension system, there is a 'Reduction System for Old-Age Pension Recipients Who Are Employed,' which reduces the old-age pension proportionally if a recipient earns income above a certain standard after retirement due to livelihood reasons. This system was introduced when the National Pension was implemented in 1988 with the purpose of "preventing excessive income for one person and promoting financial stability."
According to Article 63-2 (Old-Age Pension Amount Based on Income Activities) of the National Pension Act, old-age pension recipients who earn income (rental, business, or earned income) exceeding a certain standard each year receive a reduced pension amount for up to five years from the year they start receiving the pension, with the reduction amount depending on their income level. The reduction period varies by birth year for each pension recipient due to the increase in pensionable age (from 60 to 65 years, with 63 years in 2023).
The reduction amount ranges from as little as 10 KRW to over 1 million KRW. However, even if a recipient earns a lot through income activities after retirement, the maximum reduction limit is 50% of the old-age pension, meaning the pension can be reduced by up to half.
The reduction amount increases by a certain amount for every 1 million KRW increase in excess income beyond the reduction threshold. If the income exceeding the A value (monthly 2,861,091 KRW) is 'less than 1 million KRW' (Tier 1), 5% of the excess amount is deducted; if the excess income is '1 million KRW or more but less than 2 million KRW' (Tier 2), the reduction ranges from 50,000 to less than 150,000 KRW; if '2 million KRW or more but less than 3 million KRW' (Tier 3), the reduction is from 150,000 to less than 300,000 KRW; if '3 million KRW or more but less than 4 million KRW' (Tier 4), the reduction is from 300,000 to less than 500,000 KRW. If the excess income is '4 million KRW or more' (Tier 5), the reduction is 500,000 KRW or more.
There are criticisms that this reduction mechanism is unreasonable because it cuts old-age pensions simply because retirees earn income through economic activities for their livelihood. In response, pension authorities are considering abolishing this system to strengthen income security in old age and promote economic activities among the elderly. Meanwhile, in May last year, the Organisation for Economic Co-operation and Development (OECD) suggested several public pension improvement measures reflecting the rapid demographic changes in South Korea due to low birth rates and aging population, advising that the system which reduces old-age pensions when retirees earn money through work should be improved.
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