A ‘Mandatory’ Pension Scheme? Late-Stage Dropouts from the National Pension System in South Korea
By Jongseok Oh, Seho Son & Kun Lee
In this study, we investigate the patterns of individuals dropping out of the National Pension System, a mandatory public pension scheme in South Korea with a generous and redistributive benefit structure. We analyze administrative pension insurance data on individuals eligible for a lump-sum refund of lifetime accrued contributions at the age of 60 due to insufficient contribution records. We employ a set of linear probability models with region-fixed effects and within-between-region effects to investigate individual- and regional-level determinants of late-stage dropout. Results show that individuals who are likely to face immediate budget constraints and have unstable labor market histories are more inclined to withdraw from the system. We also find suggestive evidence that a regional economic decline increases the incidence of withdrawal within the region. Our findings reveal a mechanism through which a mandatory and redistributive pension scheme fails to protect older adults with the greatest need, calling for alternative policies for the financially vulnerable.
Source SSRN
