Korea's National Pension Outlook and Depletion Scenario (Summary)

Korea's National Pension is running dry. You pay into the National Pension faithfully every month. But will you actually get that money back in the future? When will the National Pension fund start running a deficit, and when will it finally be depleted? We've summarized the National Pension outlook and depletion scenario.

• Until 2027, the National Pension fund keeps growing (income > expenditure)
• From 2027 to 2040, National Pension returns decline and the fund begins to shrink (income < expenditure)
• From 2040 to 2055, the fund falls sharply and is projected to be completely depleted in 2055 (income << expenditure)

The Future Outlook for the National Pension

The National Pension is a kind of welfare system that secures citizens' retirement, and it's an important system tied directly to many people's livelihoods. Unfortunately, because of Korea's aging society and rising prices, the outlook for the National Pension isn't bright. The Korean National Pension outlook scenario published by the pension authority is as follows.

• National Pension growth phase: now to 2027 (growth continues)
• National Pension transition phase: 2027 to 2040 (decline begins)
• National Pension decline phase: 2040 to 2055 (full-scale depletion)

Let's take a closer look at the National Pension outlook and scenario. First, as of 2023, the National Pension records a surplus of KRW 20.85 trillion. After that, however, returns decrease every year, and in 2027 a deficit of KRW 70 billion occurs. From 2027 to 2040, the fund balance heads toward its peak and then slips into deficit. It then keeps heading downhill, and the fund is completely depleted in 2055.

Why the National Pension Is Running Dry

As mentioned above, the biggest reason the National Pension is running dry is the low birth rate and the aging population. Another reason is that, because the National Pension is linked to prices, actual pension payouts have also increased significantly. To sum up, the National Pension is running dry because there are fewer young people paying contributions, more elderly people receiving pensions, and prices are rising at the same time. In other words, it comes down to a deficit structure where income < expenditure.

What Will the National Pension Do?

During its growth phase, the National Pension paid out pensions and actively invested the remaining money in bonds, stocks, real estate, and more. Going forward, however, it may have to sell the assets it holds in order to pay pensions.

During the fund's growth phase, it could pursue strategies that took on high risk, such as increasing the share of overseas stocks and alternative investments to boost returns. But in the transition phase, as the fund shrinks, the reality is that it has to reduce the share of risky assets and scale back investment to keep pension payments running smoothly.

In conclusion, as the National Pension's finances become strained, the fund will gradually run dry, and the domestic financial market could also fall into a long-term slump. Some predict that the government will roll out a rescue plan for the National Pension before the fund is completely depleted in 2055 to prevent it from defaulting on payments. Structurally, however, the reality is that the National Pension is heading into a situation where it can no longer be sustained by market logic alone.