Photo = Reporter Huh Moon-chan
Mr. A, an executive at a large corporation, is considering subscribing to the National Pension Service as a college entrance gift for his third-year high school child. This is because it was determined that it would be more profitable than buying other gifts because if you join the National Pension Service early, your pension benefits after retirement will increase significantly.
I thought about opening a stock account and giving a certain amount for investment, but I gave up after seeing the recent decline in the KOSPI index. Person A said, “There seems to be no such thing as the National Pension Service as a way to help children form safe assets.”
400,000 people who are not obligated to join the National Pension Plan
Although the proportion of compulsory subscribers to the National Pension System is high for people with income, the number of voluntary subscribers to the National Pension Plan is also increasing at a rapid pace every year. As of July, there were 388,833 random subscribers, an increase of more than 20,000 from 366,328 at the end of last year. Among them, the number of subscribers between the ages of 18 and 19 is about 4,000. The 4,000 people who were in their 3rd year of high school or 1st year at university were voluntarily enrolled in the National Pension Plan.
Voluntary subscription is a system that allows participation in the National Pension Service for those aged 18 to 59 who cannot become compulsory subscribers, such as workplace subscribers or regional subscribers. Recipients of retirement pensions, etc., beneficiaries of livelihood benefits among basic beneficiaries, spouses of compulsory insured or other public pension subscribers, and those between the ages of 18 and 27 who are students or have no income while serving in the military can join.
Among voluntary subscribers, students often make this choice in order to extend the period of joining the National Pension Service. This is because income, which is a key variable that determines the amount of pension receipt, and the period of coverage can be expanded during the period of coverage.
The increase in the amount of pension benefits in the future if the subscription period is extended is based on the formula for calculating the basic pension amount of the National Pension. According to the National Pension Act, the basic pension amount is determined according to the subscription period, the insured’s own income, and the average income of all the insured. Multiply the sum of the average income (value A) of all subscribers and the present value of the individual’s total income (value B) by a constant reflecting the replacement rate. This value is 1.2 based on the 40% applied after 2028. After that, depending on the subscription period, 0.05 is added for each additional 20 years of service. Assuming the income conditions are the same, the pension amount of a person who has been insured for 40 years is double that of a person who has been insured for 20 years.
The A value is the average of the average monthly earnings of all insured persons 1-3 years before receiving the pension based on the previous year. The B value is calculated by converting the total standard monthly income of the insured into the present value of the year prior to receiving the pension. For those who receive the National Pension this year, the amount of pension benefits is determined based on the average income of all members from 2018 to 2020 and the amount of their income during the entire subscription period converted to the 2020 value.
If you join 10 years earlier, your pension amount will be 870,000 → 1.1 million won
We looked at the case of 31-year-old (born in 1990) A, who joined the company in 2019 using the National Pension Plan’s simulated pension calculation program. Assuming that Mr. A’s income, which averages 3 million won per month from January 2019 to November 2021, will not increase in the future, the expected old-age pension was estimated to be 874,000 won per month (based on present value). This is a case in which insurance premiums are paid for 31 years until January 2050, when the person turns 60, and then the pension is received at the age of 65, the starting age of the pension.
The average public pension receipts for 35-year-olds (as of 2019), estimated by the Financial Society and the Board of Audit and Inspection, show a similar estimate to this calculation. With an average income of 3.42 million won and a subscription period of 24.6 years, the expected public pension amount was 807,000 won.
Assume that Mr. A joins the National Pension Service 10 years early through a voluntary subscription method and pays an insurance premium (90,000 won per month) equivalent to an income of 1 million won per month. In this case, the pension that A can receive at the age of 65 is 1,109,780 won, which increases by 26.9%. 1 million won is the median income of regional national pension subscribers as of 2021, and is the lowest insurance premium that can be voluntarily enrolled.
There is an advantage even if you only pay the insurance premium for the first month after you voluntarily sign up at the age of 18. This is because ‘National Pension Tech’, which extends the subscription period by paying premiums for 10 years at once through future payments, is possible. In fact, Democratic Party presidential candidate Lee Jae-myung introduced a policy to support the first month of national pension premiums for high school seniors in 2018 while serving as governor of Gyeonggi-do, but withdrew the policy after acknowledging that excessive national pension tech could occur.
By Kang Jin-gyu, staff reporter josep@hankyung.com
