South Korea's pension system is in need of reform amid low birth rates, an aging population and slowing economic growth, experts said.
As well as a need for increased contributions, investment rules need to change. A strict target portfolio with a domestic bias, which is imposed on public pension funds including the National Pension Service, Jeonju, also hurts plans' long-term sustainability, experts said.
On Jan. 27, a government panel said the NPS, one of the world's largest pension funds with 920 trillion won ($692.5 billion) in assets as of Nov. 30, will be depleted by 2055 — two years before the previous forecast.
The panel conducts a review and publishes estimates on the NPS every five years. In 2018, it said the year of depletion would be 2057, and the year the NPS would be in deficit would be 2042. In the recent announcement, it said the year of deficit is now 2041.
"As the total fertility rate declines and life expectancy increases, it is expected that the number of people enrolled in the national pension will decrease and the number of recipients will increase, resulting in a decrease in income from insurance premiums and an increase in expenditure on benefits," the report said.
South Korea's fertility rate fell to the lowest in the world in 2020 for the first time, and it has continued to fall. Women in South Korea are now expected to give birth to an average of 0.73-1.21 babies in their lifetime over the period of 2023-2070 — a decline from the 2018 review of 1.27-1.38 births.
The proportion of people aged 65 and above is expected to come in at 17.5% of the population when the final count is released for 2022, and reach 34.4% by 2040.
The Organization for Economic Cooperation and Development forecasts South Korea's real GDP growth rate to be 2.7% for 2022, 1.8% for 2023 and 1.9% for 2024.