Summary and Conclusions

This study focused on the quantitative assessment of the impact of the second amendment to the National Pension Act passed in July 2007 on the sustainability, equity, and adequacy of the National Pension Scheme. The assessment was based on simulation analyses and policy implications that can be applied for the development of the system in the future. Overall, the revision of the act can be positively assessed in light of its preemptive response to the country's rapidly aging society through measures to stabilize the pension finance, strengthen the rights of the stakeholders, and to rationalize the National Pension Scheme. However, there are certain additional tasks to complement the scheme from both the economic and welfare perspectives. The results of major analyses used in the assessment process of the revision of the National Pension Act and future policy tasks drawn by the analysis results can be summarized as follows.

First, despite the huge benefit cuts, we have assessed the reform of the National Pension Scheme as an insufficient measure for striking a long-term balance of the pension finance. This is mainly because the basic principles of the financial stabilization measures were marred in the process of political compromise. Therefore, it is important to exclude political logic as much as possible and to come up with more reasonable measures to stabilize the pension finance by setting clearer and more specific goals for fund management and financial stabilization. To this end, it is necessary to draw up such plans as shortening the adjustment period for benefit cuts, while introducing the automatic balance mechanism to reflect the increase in life expectancy, together with a gradual increase in contribution rates. These measures will contribute not only to the stabilization of the pension finance but also to the enhancement of intergenerational equity.

Secondly, the results of simulation analyses suggest that the improvement of the Pension Fund's rate of return by 0.5 percentage points per year can delay the timing of fund exhaustion by more than five years. This suggests that the enhancement of profitability and stability through an effort to advance the pension fund management system is a very important policy task. Also, non-systemic policy measures such as a plan to increase birthrates or to provide incentives for the elderly to participate in income-generating activities can make indirect contributions to the stabilization of national pension finance.

Lastly, we note that the role of the National Pension Scheme as an old age income source will be reduced in the long term with the amendment to the National Pension Act, which requires an effort to secure various other old age income sources. To this end, it is urgent to expand the range of pensionable incomes through an upward adjustment of the current earnings ceiling which has been fixed for the last 20 years at its nominal value of 3.6 million KRW. It is also important to introduce a method to link this increase with the income growth rate. To promote retirement pension products at the company level and to activate the private personal pension market, a more advanced multilayer old age income security system should be established through system reinforcement and support measures. Also, the strengthening of the recently introduced reverse mortgage system could be an effective complementary measure, given the fact that 80% of the total assets possessed by the elderly population in Korea are in the form of real estate.

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