The Old-age Income Security Effect of the New Contribution Subsidy Program for Individual-Based National Pension Participants

Abstract

The National Pension has in place a contribution subsidy program purposed to help those who, for economic reasons, have been exempted from paying contributions to the pension scheme to resume paying into it. Implemented in July this year, the subsidy program is intended to improve the old-age income security of individual-based enrollees with low income who, despite their high economic vulnerability, had until then been left out of subsidy support. The key role of the subsidy program is in providing matching contributions for eligible individuals so as to make it more affordable for them to resume paying into the National Pension scheme. To put it another way, the advantage of the contribution subsidy program consists in providing something of an incentive for individual-based enrollees to reenter the National Pension system. Such a program, as it in effect increases both benefits and contributions for the participant, is well in accord with the basic principle of social insurance scheme. It is difficult at this point of time to assess what impact this program will have on old-age income security, with only a few months having elapsed since its implementation. However, there have been some views that, given the low level of subsidy and the insufficient maximum number of eligible months, the new support program is too meager to bring about a substantive impact. Against this background, this study, drawing on a microsimulation approach, estimates the old-age income security impact of the pension contribution subsidy program and draws out some implications for policy.