[Exclusive] Pre-payment of National Pension Credits Could Cost 800 Billion Won Annually

Worsening Fiscal Capacity Increases Burden of Pre-Payment
Credit for Childbirth and Military Service Subscription Periods
Immediate Recognition Through Pre-Payment Model Unlikely
Annual Fiscal Outlay Could Reach 700 to 800 Billion Won

The government is considering shifting the payment method for the National Pension credit system from a "post-payment" to a "pre-payment" model. However, internal estimates suggest that this change could increase the annual fiscal burden to between 700 billion and 800 billion won, prompting careful deliberation. While there have been ongoing calls for pre-payment, given the policy’s intent to boost birth rates and reward social contributions, there are concerns that the fiscal burden could become excessive in light of the current deterioration in national finances.

According to relevant ministries on June 27, the government is currently discussing the support method for the National Pension credit system as part of the process of coordinating the 2026 budget proposal. The Ministry of Economy and Finance, in consultation with the Ministry of Health and Welfare and others, is reviewing the fiscal impact of a pre-payment approach, which would immediately recognize National Pension subscription periods at the time of childbirth or military service.

The National Pension credit system is a policy that acknowledges periods during which individuals could not pay insurance premiums due to social contributions such as childbirth or military service. Even if actual premiums are not paid, the state may pay on behalf of the individual (pre-support), or, alternatively, the subscription period may be recognized when pension payments begin in the future (post-support), thereby increasing the amount received.

Currently, credits are provided on a post-payment basis. For childbirth credits, when pension payments begin, an additional 12 months of subscription is recognized for the first child, and 18 months for the third child and onwards. For military service credits, 12 months are recognized. Since these credits are only reflected when the individual reaches pensionable age, there have been criticisms that subscribers cannot immediately feel the benefits.

The Ministry of Health and Welfare and others have argued for switching to a pre-payment model. They believe that if the government immediately covers the National Pension premiums from the state budget after childbirth or military service, subscribers will be able to recognize the benefits right away.

The main issue is the significant fiscal burden. The Ministry of Economy and Finance estimates that adopting a pre-payment method could increase the annual fiscal burden to between 700 billion and 800 billion won. The concern is that if the government chooses to provide immediate fiscal support simply to slightly increase public awareness of the system, the annual financial burden will inevitably rise.

There are also complex variables to consider when designing a pre-payment credit system. For example, childbirth credits are based on the assumption that women take a break from economic activity after childbirth, but in reality, some return to work quickly without taking the full year off. In such cases, it must be decided whether the government should fully cover the portion of the insurance premium that the employer pays after the employee returns to work.

However, there has been consistent criticism of the current post-payment method. Critics argue that, in the long run, the system imposes a greater fiscal burden on future generations. One pension expert stated, "The post-payment method is structured so that, until the beneficiary passes away, the monthly pension paid is increased due to the inclusion of credits. This means that, in the long term, the fiscal burden is even greater and shifts the burden onto future generations."