Fiscal Projection of the Eight Major Social Insurances for 2019~2028
Issue Date : November 28, 2019
Department in Charge : Social Cost Estimates Division, Estimates and Tax Analysis Department
This report introduces the history, operation system, description of the subscription and benefit system, fiscal structure, and financial accounting (fiscal projection) system, etc., of the eight major social insurances. It also explores the fiscal status of each social insurance together with income, spending, and status of fund management, etc., and projects the fiscal status of each social insurance from 2019 to 2028. As for Health Insurance and Long-term Care Insurance, considering that insurance reserves will be exhausted during the projected period, a sensitivity analysis on the impact of changes in major variables including insurance contribution rate, increase rate of service fees, and fiscal spending reduction plan, etc., on insurance finance is added. Meanwhile, fiscal indicators including system dependency ratio, ratio of income to spending, and reserve ratio, etc., are presented to review the fiscal soundness of social insurances.
NABO's fiscal projection indicates that the income of the four public pensions (National Pension, Private School Teachers Pension, Government Employees Pension, and Military Personnel Pension) is projected to increase by an annual average of 4.4% from 89.6 trillion won in 2019 to 132.4 trillion won in 2028, with spending projected to increase by an annual average of 8.1% from 49.2 trillion won in 2019 to 98.9 trillion won in 2028. As a result, the fiscal balance is expected to decrease from 40.4 trillion won in 2019 to 33.6 trillion won in 2028. Other than public pensions, the income of social insurances (Employment Insurance, Industrial Accident Compensation Insurance, Health Insurance, and Long-term Care Insurance) is projected to increase by an annual average of 7.5% from 96.0 trillion won in 2019 to 183.3 trillion won in 2028, with spending projected to increase by an annual average of 7.7% from 101.0 trillion won in 2019 to 196.1 trillion won in 2028. As a result, the fiscal balance is expected to see its deficit increase from △4.9 trillion won in 2019 to △12.8 trillion won in 2028. Among social insurances, while Employment Insurance and Industrial Accident Compensation Insurance are expected to see a positive fiscal balance, Health Insurance and Long-term Care Insurance, which have a large scale of funds under management, will see a continuous increase in the deficit of fiscal balance, expanding the deficit of the overall fiscal balance of social insurances.
The review of the fiscal soundness of the eight social insurances based on fiscal projection shows that the system dependency ratio, which indicates the number of recipients per 100 subscribers, is projected to be 54.6 for Military Personnel Pension, 51.0 for Government Employees Pension, 39.7 for Private School Teachers Pension, and 38.0 for National Pension as of 2028. However, the system dependency ratios of National Pension and Private School Teachers Pension are expected to show rapid increases and converge with the level of those of Government Employees Pension and Military Personnel Pension. The ratio of income to spending is a fiscal indicator measuring the respective year's income capacity to cover spending, and while the income of National Pension, Private School Teachers Pension, Employment Insurance, and Industrial Accident Compensation Insurance are projected to be able to cover spending with ratios of 1.7 times, 1.0 times, 1.1 times, and 1.3 times, respectively, as of 2028, the income of Government Employees Pension (0.8 times), Military Personnel Pension (0.5 times), Health Insurance (0.9 times), and Long-term Care Insurance (0.7 times) are projected to be short of covering spending. The reserve ratio is an indicator measuring the level of the respective year's reserves covering spending, and National Pension shows a ratio of 18.2 times as of 2028, which is higher than other public pensions (Private School Teachers Pension: 3.3 times), but is projected to see its reserve ratio quickly decrease during the projection period. The reserve ratio of Employment Insurance is projected to be less than 1 times (0.8 times), while Industrial Accident Compensation Insurance is projected to see a rapid increase in its reserve ratio with 4.2 times in 2028. As for Health Insurance and Long-term Care Insurance, the reserve ratios are not measured as their reserves will be exhausted in 2024 and 2022, respectively.