Let’s Require National Pension Contributions Beyond Age 60 [Economic Insight]

"In mid-May, I took a historical trip to Yamaguchi Prefecture, located at the western tip of Honshu (the main island) in Japan, focusing on the Meiji Restoration. Although I visit Japan frequently, I am always surprised by the working elderly I see there. The charter bus driver and the serving staff at the hot spring hotel I used this time appeared to be around 70 years old. I also met an octogenarian working at a convenience store near the accommodation. There are quite a few employees in their late 60s working at large corporations as well."

This is part of an article written last year by Choi In-han, director of the Current Affairs Japan Research Institute and a Japan expert, published in a weekly magazine.

South Korea is closely following Japan in terms of aging population. Like Japan, people in South Korea are living healthier and longer lives, and will be able to work until older ages. Due to the declining birthrate and shortage of young population, it is necessary to utilize not only female and foreign labor but also elderly labor.

After 18 years, a reform of the National Pension Service was implemented. The contribution rate (the amount paid) was raised from 9% to 13%, and the income replacement rate (the amount received) was increased from 40% to 43%. Increasing the income replacement rate by 1 percentage point requires an additional 100 trillion won in National Pension finances. In total, 300 trillion won more will be needed, which accelerates the depletion timeline. I believe that true reform would be to keep the income replacement rate at 40% without raising it. It should not have been increased.

Some politicians are raising their voices, claiming that this amendment increases the burden on the younger generation while benefiting the older generation, calling it a regressive law. There are also proposals to differentiate contribution rates so that the younger generation pays less. The reform was intended to strengthen the National Pension finances, so reducing contributions is unreasonable. This reform only delayed the depletion of the National Pension by 9 years, until 2064. There are no cases of age-differentiated contribution rates in pension reforms of advanced countries. Moreover, expansion of birth and military credits should also be considered.

Some politicians should refrain from undermining the 'social integration' purpose of the National Pension. It was created to guarantee a certain level of retirement security for both the wealthy and the less well-off, promoting 'living well together.' The National Pension is not meant to divide generations.

Then, how can we preserve the purpose of the National Pension while preventing its depletion? Consider the Japanese example mentioned above: elderly people are healthier, live longer, and can work sufficiently at older ages. Working to some extent is beneficial for both physical and mental health. Even if working hours are reduced, work should not be abandoned.

The number of employed people aged 60 and over in South Korea increased from 1.96 million (employment rate 37.6%) in 2000 to 6.49 million (employment rate 45.9%) in 2024. Among the 6.49 million employed aged 60 and over, 3.81 million are 65 or older, 1.98 million are 70 or older, and 1.02 million are 75 or older. The number of elderly workers will continue to rise. Of course, many work out of financial necessity, but for the 386 generation born in the 1960s and later, assets and pension income will improve significantly compared to the past. The proportion forced to work will also decrease.

Those who can work after retirement age are likely to be better off than those who cannot. However, since the mandatory National Pension enrollment period ends at age 60, contributions are no longer required even if income continues after 60. If people can work and earn income beyond 60, it is possible to require mandatory National Pension contributions as before.

From an individual perspective, some may prefer to pay more and receive more. If people continue to work and pay National Pension contributions after age 65 and delay the pension receipt age, it will also help the National Pension finances. (Of course, delaying the receipt age should be optional.) We should consider extending or abolishing the mandatory National Pension enrollment age from 60 to 70. That is the spirit of the National Pension's 'social integration.'

In conclusion, if there is income beyond age 60, National Pension contributions should be mandatory. Those who can work after retirement age should work longer, pay more into the National Pension, and receive benefits proportional to their contributions.