Mr. A, who is about to receive his national pension, recently received a letter from the National Pension Service. It said that he could receive more pension if he returned the national pension (lump-sum refund) he had previously received in a lump sum to the service with interest. Mr. A, who was half-hearted about whether this was a scam impersonating the service, contacted the service directly and decided to return the lump-sum refund as instructed. How much more pension will Mr. A receive?

Give back and get more

The National Pension Service operates a ‘Lump-Sum Refund’ system to expand the people’s pension rights. Here, the lump-sum refund refers to the benefit paid to those who have not completed the minimum subscription period (10 years) required to receive the national pension and have reached the age of 60. It is the amount of insurance premiums paid by the subscriber plus a certain amount of interest. Unlike general pension benefits, it is not paid monthly but is paid once. Even if you move abroad or stay abroad for reasons such as employment or study, you can receive the lump-sum refund.

From 1988, when the national pension system was introduced, until 1998, it was possible to receive a lump-sum refund after one year of unemployment. In 1998, right after the foreign exchange crisis, the unemployed could apply for a lump-sum refund until 2000. Unemployed people who did not have money to live on immediately used their national pension for retirement and received a lump-sum refund. The number of such people exceeded 7 million.

Returning this lump sum refund plus interest to the corporation is called a ‘return’. If you return the lump sum refund with interest, the past subscription period during which you paid insurance premiums will be revived, increasing the amount of pension you receive.

If you return the lump sum with interest, the past subscription period, when the income replacement rate was higher than now, will be restored. The income replacement rate refers to the ratio of the pension received to the average income of the subscriber, assuming that the subscriber has subscribed to the National Pension for 40 years. In simple terms, it indicates how much pension is received compared to one’s income.

After the introduction of the national pension in 1988, the income replacement rate reached 70% until 1998. After that, as the national pension depletion crisis grew, pension reform was implemented, and the income replacement rate dropped to 60% between 1999 and 2007. Since 2008, the income replacement rate has decreased by 0.5% point every year from 50%, and will reach 42% this year (40% in 2028). Considering this structure, when returning, the past subscription period when the income replacement rate was higher than now is restored, so the pension amount increases and subscribers benefit.

However, not everyone can apply for a refund. Only those who have lost their national pension subscription history by receiving a lump-sum refund and have regained their membership status can apply for a refund. This means that you can return the premium if you pay it through income-generating activities or voluntary subscription. Another thing to note is that if a subscriber who has been subscribed to the national pension for less than 10 years reaches the age of 60 and receives a lump-sum refund instead of a pension, then you cannot return the premium.

When returning, you must pay interest in addition to the lump sum refund. The interest for the period from the month in which the lump sum refund was received to the month preceding the month in which the return application date falls is calculated as an additional amount. The annual interest rate (1-year term deposit interest rate) set by the corporation can be found on the National Pension Service website. As of this year, the interest rate applied to the refund is 3.0%.

The refund can also be paid in installments.

Let’s go back to Mr. A’s case. Mr. A, who had been working until she gave birth, received a lump-sum refund of about 1.45 million won when she quit her job in 1998. Ms. A received guidance from the National Pension Service that in order to restore her previous subscription period, she would have to pay about 3.2 million won, more than double the lump-sum refund and interest.

However, even if he has to pay a considerable amount of interest, it is advantageous for Mr. A to apply for a return. Mr. A was informed that if he returns the lump sum with interest, his expected pension amount will increase from 980,000 won per month to 1,070,000 won per month. If he pays about 3.2 million won, he can receive an additional pension of 90,000 won per month, or 1,080,000 won per year. In 3 years, the additional pension amount will increase to 3.24 million won, which is more than enough to recover the principal he paid.

Since you have to pay a large amount at once, you can pay in installments. You can pay the full amount at once or divide it into 3 to 24 installments depending on your previous subscription period. However, if you pay in installments, you will have to pay with interest.

Reporter Heo Se-min semin@hankyung.com