The government said Wednesday it will force companies to subscribe to private retirement pension programs in phases by 2022 in an effort to provide a stronger safety net for retirees.
Companies with 300 employees or more will have to subscribe to retirement pension programs for their workers starting in 2016.
Other firms with smaller workforces are required to subscribe by 2022, according to the Finance Ministry.
The decision was announced at a meeting of key economic policymakers, chaired by Finance Minister Choi Kyung-hwan.
Under the plan, 672 companies will be subject to mandatory subscription in 2016. About 1.3 million firms will have to introduce private retirement pension programs by 2022, according to the ministry.
The move is part of a series of measures meant to help solve growing concerns that the state-run public pension might not be enough to support the senior population after retirement.
Fiscal pressure is mounting that welfare spending on senior citizens could become too heavy for future generations due to the fast-aging population and chronically low birth rates. The poverty ratio among older people is also growing, raising the need for a safety net for the post-retirement group.
Retirement pension was first introduced in 2005 but only 16 percent of companies have it. The ratio is particularly low among small- and medium-sized companies that have less financial resources.
“The public pension’s income replacement rate is projected to be around 40 percent in 2028. Given that advanced countries guarantee some 70 percent of income, an additional 20-30 percent of income should be guaranteed through retirement and other private pension programs,” Jeong Eun-bo, a deputy finance minister, said at a press conference.
“The reality, however, is that pension programs do not function that way, so the measures unveiled today place their policy focus mostly on guaranteeing income for seniors.”
Along with the mandatory subscription, the government also plans to ease regulations related to retirement pension fund operation to allow companies to “strike a balance between safety and profitability” by investing in stocks and other riskier assets.
In a related move, the government will introduce a fund-type pension in July 2016, allowing a company committee comprised of management, labor and outside experts to determine how it will operate the company pension money.
This is intended to encourage more employees to participate in the operation of the fund, unlike the current system in which companies usually hire financial agencies to manage the money.
The fund-type pension is expected to give more leeway to large companies such as Samsung and Hyundai to maximize profitability in running their trillions of won worth of accumulated retirement pension deposits.
The government also plans to ease the ceiling of risky asset ownership for defined contribution-typed retirement pension programs to 70 percent from the current 40 percent, allowing for more investment in stock markets.
These measures, while designed to help pension operators maximize their profitability, come with worries that the leeway also increases the overall risk of losses. (Yonhap)