National pension fund projected to dry up by 2055

National pension fund projected to dry up by 2055 [Photo by Yonhap]

South Korea’s national pension fund will run a deficit from the year 2041 and completely run dry by 2055, two years earlier than earlier estimate, according to the government’s new projection.

An expert panel dedicated to pension finance estimation issued the grim outlook last Friday based on the current pace of spending and in the absence of reforms. It is the government’s fifth such projection that has been released every five years since 2003. This year’s assessment was issued two months earlier than planned.

According to the estimation, the existing pension system based on its current structure will see more revenue than expenditure for the next 17 years, with funds expected to peak at around 1,755 trillion won ($1.43 trillion) in 2040 from the current 915 trillion won.

However, from the following year, expenses will outpace revenue and the pension fund will dry up by 2055, two years faster than the previous projection issued in 2018.

The fund’s latest situation has worsened compared to the estimate five years ago amid a slump in birth rate and aging population. The minimum premium rate to avoid a deficit was estimated at 19.57 percent, up 1.37 percentage points from the previous projection. After the fund dries up, the premium rate that must be paid to cover pension expenditures was estimated at up to 34.9 percent, up 5.4 percentage points.

The government plans to announce separate estimates for each scenario by adjusting the insurance premium rate and income replacement rate in March.