(Bloomberg) -- South Korea’s national pension fund, one of the world’s biggest, will run out by 2056 if urgent reforms including boosting contributions aren’t introduced, the government said.
“The fund will reach its peak in 2041, then could be fully drained in 2056 according to our financial estimates,” South Korea’s First Vice Health Minister, Lee Ki-il, told a briefing Wednesday. “If there are no reforms, the drainage would be faster.”
The government’s previous estimate had been for 2055. The one-year delay is due to the growth in funds of the National Pension Service, which managed 1,147 trillion won (more than $860 billion) as of the end of June.
While the new estimate is a slight improvement over the previous forecast, the fund’s risk of depletion underscores a dire situation unfolding for retirees in South Korea, which is facing a rapidly aging population and the world’s lowest birthrate.
The government proposed pension reforms earlier this month, including a gradual increase in the contribution rate to 13% of income from the current 9%. If approved by parliament, they’d be the first changes since 1998.
“This is the best and most optimal time to do the pension reform,” Lee said, warning that any delay would increase the burden on the next generation.
South Korean President Yoon Suk Yeol has also mooted a tiered system in which obligations would be increased for older workers at a higher rate, with increases implemented more gradually for younger workers.
The fund posted a 9.71% return in the first half of 2024, helped by gains in US tech stocks. It allocated 34.1% of its assets in overseas stocks, followed by domestic bonds, alternative investments and onshore stocks, according to the latest data.
To generate more returns, the government wants the fund to increase its exposure to overseas assets and alternative investments including real estate, infrastructure and private equity funds.
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