Injoys
Changes at a Glance
Starting in July, both the upper and lower limits of the standard monthly income used to calculate National Pension premiums will be adjusted. The standard monthly income is the key basis for calculating National Pension premiums and future pension benefits.
There are two key aspects to this adjustment.
- Increase in the Upper and Lower Limits of the Standard Monthly Income: The maximum and minimum income thresholds used to calculate premiums will rise.
- Application of a 9.5% Premium Rate: Even for the same income level, a higher premium rate will result in an increase in the monthly premium paid.
However, the National Pension is not simply a tax but a social insurance program that calculates retirement benefits. While higher premiums increase the immediate financial burden, they also have the effect of raising the income threshold used to calculate future old-age pension benefits.
What Is the Standard Monthly Income?
Standard Monthly Income is the amount recognized within a certain range as the subscriber’s monthly income for the purpose of calculating National Pension premiums and benefits.
Premiums are not levied indefinitely even if income is very high, and a minimum threshold is set even if income is very low. The following two thresholds are used for this purpose.
| Category | Meaning |
|---|---|
| Upper Limit | The maximum monthly income recognized for calculating insurance premiums |
| Lower Limit | The minimum monthly income recognized for calculating premiums |
For example, if the upper limit is 6.59 million won per month, even if your actual monthly income is 8 million won, only up to 6.59 million won will be reflected in the National Pension premium calculation. Conversely, if the lower limit is 410,000 won per month, premiums may be calculated based on 410,000 won per month even for subscribers whose reported or recognized income is lower than that amount.
Changes to the Upper and Lower Limits Effective July
With this adjustment, the upper limit for the standard monthly income will rise from 6.37 million won to 6.59 million won, and the lower limit will rise from 400,000 won to 410,000 won.
| Item | Previous | Change | Increase |
|---|---|---|---|
| Upper Limit of Standard Monthly Income | 6.37 million won | 6.59 million won | 220,000 won |
| Lower Limit of Standard Monthly Income | 400,000 won | 410,000 won | 10,000 won |
These standards are periodically adjusted to reflect changes in the average income of all subscribers. As wages and prices rise, past upper and lower limits fail to accurately reflect current income levels; therefore, the National Pension Service adjusts the standard monthly income to update the criteria for calculating premiums and benefits.
How much will premiums increase if the 9.5% premium rate is applied?
National Pension premiums are generally calculated as follows:
National Pension Premium = Standard Monthly Income × Premium Rate
The premium rate assumed in this discussion is 9.5%.
Maximum Monthly Premium
Applying the 9.5% premium rate to the monthly cap of 6.59 million won results in the following maximum monthly premium:
| Calculation | Amount |
|---|---|
| 6.59 million won × 9.5% | 626,050 won |
Therefore, the total monthly National Pension premium for subscribers whose monthly reference income is at or above the cap is 626,050 won.
For workplace subscribers, this amount is split equally between the employee and the employer.
| Category | Monthly Contribution |
|---|---|
| Total Premium | 626,050 won |
| Employee’s Share | 313,025 won |
| Employer’s Share | 313,025 won |
For regional subscribers or voluntary subscribers who bear the full cost of premiums themselves, the perceived financial burden may differ from that of workplace subscribers.
Why Are Those with Incomes Exceeding the Upper Limit Most Affected?
Subscribers whose monthly income exceeds the previous cap of 6.37 million won will be most significantly affected by this adjustment. This is because, while premiums were previously calculated only on income up to 6.37 million won, the revised rules now recognize income up to 6.59 million won for premium calculation purposes.
When combined with the increase in the premium rate, the rise in the amount payable becomes even greater.
| Comparison Method | Previous Premium | Revised Premium | Monthly Increase |
|---|---|---|---|
| 9% applied to the previous 6.37 million won; 9.5% applied to the revised 6.59 million won | 573,300 won | 626,050 won | 52,750 won |
| Comparing only the change in the cap while keeping the premium rate at 9.5% | 605,150 won | 626,050 won | 20,900 won |
In other words, if we consider only the effect of the cap increase, the monthly increase is 20,900 won, and if we also factor in the effect of the premium rate rising from 9% to 9.5%, the monthly increase is 52,750 won.
Since employers cover half of the cost for workplace subscribers, the increase in their out-of-pocket expenses is also calculated as half.
| Comparison Method | Total Premium Increase | Increase in Out-of-Pocket Expenses for Workplace Subscribers |
|---|---|---|
| Comparing only the change in the upper limit | 20,900 won per month | 10,450 won per month |
| Reflecting both the change in the upper limit and the premium rate | 52,750 won per month | 26,375 won per month |
How will this affect those with incomes below the lower limit?
The lower limit for the standard monthly income will rise from 400,000 won to 410,000 won. Applying the 9.5% premium rate, the premium based on the lower limit is as follows.
| Category | Calculation | Total Premium |
|---|---|---|
| Previous lower limit with 9% applied | 400,000 won × 9% | 36,000 won |
| Revised lower limit and 9.5% rate | 410,000 won × 9.5% | 38,950 won |
If we compare only the adjustment to the lower limit based on the 9.5% rate, the increase is approximately 950 won. However, when considering the combined effect of the increase from the previous premium rate of 9% to 9.5%, the total premium based on the minimum threshold rises by 2,950 won per month.
For employed subscribers, half of this increase will be reflected in their out-of-pocket costs.
What changes for middle-income subscribers?
For subscribers whose monthly base income falls between the previous lower and upper limits, the direct impact of the adjustments to the upper and lower limits is relatively small. Based on the provided data, subscribers in the range of 410,000 won to 6,370,000 won per month make up the majority of the total.
However, if the premium rate rises from 9% to 9.5%, premiums will also increase for subscribers in this bracket. Assuming the monthly reference income remains unchanged, the increase in the total premium amount is calculated as follows:
Monthly premium increase = Monthly reference income × 0.5 percentage points
Here is an example:
| Monthly Base Income | 9% Premium | 9.5% Premium | Total Premium Increase | Increase in Employee’s Share |
|---|---|---|---|---|
| 1 million won | 90,000 won | 95,000 won | 5,000 won | 2,500 won |
| 2 million won | 180,000 won | 190,000 won | 10,000 won | 5,000 won |
| 3 million won | 270,000 won | 285,000 won | 15,000 won | 7,500 won |
| 4 million won | 360,000 won | 380,000 won | 20,000 won | 10,000 won |
| 5 million won | 450,000 won | 475,000 won | 25,000 won | 12,500 won |
Perceived Differences Between Workplace and Regional Enrollees
The impact of the National Pension premium increase varies depending on the enrollment type.
| Enrollment Type | Premium Burden Method | Perceived Impact of Increase |
|---|---|---|
| Workplace Enrollees | Employee and employer each bear half | The amount deducted from the pay stub represents half of the total increase |
| Regional Enrollees | The individual bears the full cost | The individual bears the entire increase shown on the bill |
| Voluntary Enrollees | Bear the full cost based on their chosen criteria | The increase in burden depends on the selected monthly reference income and the premium rate |
Therefore, even with the same monthly reference income, workplace enrollees experience a smaller increase in their actual household cash flow because the employer covers half, whereas regional enrollees bear the entire increase directly.
If insurance premiums rise, will the pension I receive later also increase?
The National Pension System calculates old-age pensions based on factors such as paid premiums, the period of enrollment, the average income of all enrollees, and the individual’s average lifetime income. While the system is not simply structured so that “you get back exactly what you paid in this month’s premium increase,” a higher standard monthly income can raise the income threshold used to calculate your future pension amount.
Changes in the income replacement rate are particularly important.
The income replacement rate refers to the ratio of the pension amount received after retirement to the average income earned during the subscriber’s working years. Generally, the National Pension’s income replacement rate is explained based on an average-income earner who has been enrolled for 40 years.
According to the proposed reform criteria, the income replacement rate will increase from 41.5% to 43%. This means that the system’s standards will be adjusted so that, for an average-income earner who has been enrolled for 40 years, the future pension amount will be 43% of their lifetime average income.
Why Is the Standard Monthly Income Adjusted Every Year?
If the upper and lower limits of the standard monthly income remain fixed for a long time, they may become out of step with reality. If the upper limit is kept low even as wages rise and inflation increases, the actual income growth of high-income earners will not be sufficiently reflected in the pension calculation criteria. Conversely, if the lower limit is set too low, the criteria for calculating the minimum premium and minimum benefits may become disconnected from actual income levels.
The National Pension Service adjusts the standard monthly income to reflect changes in the average income of subscribers. The provided data explains that the adjustment reflects a 3.4% increase in the average income of all subscribers over the past three years.
What Subscribers Need to Check
The extent to which your financial burden will increase as a result of this adjustment depends on your subscription type and standard monthly income. You can quickly determine the actual impact by checking the following items.
1. Your Standard Monthly Income
You should verify your currently applicable standard monthly income through your pay stub, National Pension statement, or the National Pension Service’s online portal. Your actual monthly salary may not always be exactly the same as your standard monthly income.
2. Enrollment Type
For workplace enrollees, the employer covers half of the premium, whereas regional enrollees are responsible for the full amount. Therefore, even with the same total increase in premiums, the burden on households will differ.
3. Whether You Fall Within the Upper or Lower Income Brackets
If your monthly income exceeds the upper limit or falls below the lower limit, you will be directly affected by adjustments to the standard monthly income. If your income falls within the middle range, the impact of the premium rate increase will be the primary factor.
4. Projected Future Pension Amount
While a premium increase may be a short-term burden, it can have a positive effect on the calculation of your future old-age pension. However, the actual projected pension amount varies depending on factors such as the duration of enrollment, payment history, income fluctuations, and the age at which benefits begin.
Key Points
- The upper limit for the standard monthly income is adjusted to 6.59 million won per month, and the lower limit to 410,000 won per month.
- When the 9.5% premium rate is applied, the maximum monthly premium is 626,050 won.
- Employed subscribers pay half of the total premium, while the employer pays the other half.
- Individuals with incomes exceeding the upper limit may be affected by both the increase in the upper limit and the increase in the premium rate.
- For middle-income subscribers, the increase in the premium rate is the primary factor driving the rise in their burden, rather than the adjustments to the upper and lower limits.
- The application of a 43% income replacement rate represents a change aimed at increasing the calculated amount of future old-age pensions.
