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The National Pension as a defined benefit scheme, combining earnings-related and redistributive components together, is designed to function as an appropriate income protection system against a wide range of social risks including old age, disability and death. Under the Scheme, income the insured person earned during the insured period is recalculated into the present value and the real value of benefit is also guaranteed through a price-based sliding scale indexation mechanism even after the pension amount is determined.

The pension amount is generally composed of two factors. One is the amount based on the current or former insured person's contributions paid in the event of old age, disability, death, etc. The amount varies depending on the benefit type, insured period, the receiving age of first benefit, existence of income, the degree of disability, etc.

The other is the dependents' pension amount. This is additionally provided to pensioners(in the case of survivor pension, the current or former insured person) for their dependents. Therefore, the dependents' pension amount will not be paid to those who do not meet recognition criteria regarding livelihood support. Also, it shall not be provided under an active old-age pension.

(1) Basic Pension Amount (BPA)

The BPA is the basis for the calculation of old-age, disability, and survivor pension. The BPA is applicable only to an insured period of 20 years or longer. Accordingly, the reduced old-age pension for an insured period of less than 20 years, is calculated by multiplying the BPA by the payment rate based on the insured period. In the event of disability, the pension amount is calculated by multiplying the BPA by the payment rate based on the disability degree even for an insured period of less than 20 years.
The factors determining the amount of the BPA are insured period, average income of all the mandatorily insured person and the insured person's average income during his/her insured period. The BPA is in direct proportion to the insured period, but not to the insured person’s income because the average income of all the mandatorily insured person is included in determining factors. This average income functions to help the pension scheme to redistribute incomes between economic classes. Namely, it protects those with a low income and unites society by setting the income replacement rate for the insured persons with a lower-than-average income high while making that for the insured persons with a higher-than-average income low. The BPA also helps the beneficiaries maintain their pre-retirement standard of living because it is adjusted in proportion to the insured person's average income during his/her insured period.

The BPA is applied to the person who gains a pension right during the period between April and March of the following year.

Basic Pension Amount = 1.5 ( A + B ) × ( 1 + 0.05N )

[1.5] is a proportional constant to make the income replacement rate of the insured person with average income (A=B) and 40-year insured period 50% (in the case of an insured person with a 20-year insured period, about 25%).
※Since the National Pension Act was amended, the replacement rate is being reduced by 0.5% annually until reaching 40% in 2028 and the proportional constant is also being reduced by 0.015 annually until reaching 1.2 in 2028
(In 2010, the replacement rate is 49% and the proportional constant is 1.47).

[A] is the average (the redistributive component) of the price-indexed average monthly income for the 3 years prior to pension payment.

※ The average monthly income is the average of Standard Monthly Incomes (SMI) of the all the mandatorily insured person (except for those exempted from contributions payment) as of December 31 each year.

[B] is the average amount of the SMI of an insured person during his/her insured period. This is the earnings-related element adjusted into the value of the year prior to pension payment. The revaluation is based on the fluctuation rate of A.

[0.05] represents an additional annual rate (5%) for the insured period exceeding 20 years.

[N] represents the number of insured years in excess of 20 years. Each month is calculated as 1/12 year.

insured period: insured period included in benefit calculation means the period during which contributions are paid. Accordingly, any period with payment of postponed contributions or repayment of a lump-sum refund is taken as insured period. In the case that there is a change in the type of coverage, the insured period of each category is totalled. On the other hand, the period of unpaid contributions and that of contribution exemption are excluded from insured period. But until the employee in the delinquent workplace gets notified of delinquency with deduction of contributions from wages, half of the total period of delinquency is regarded as insured period.

(2) Dependents' Pension Amount (DPA)

The DPA is an additional pension as a type of family allowance. Dependents eligible for the DPA include spouse, children aged less than 18 or with disability of the 2nd or 1st degree(including a step-child whom the spouse gave birth to before remarriage), and parents aged 60 or over or with disability of the 2nd or 1st degree (including spouse's parents), supported by the pension beneficiary (the current or former insured person, in the case of a survivors pension).

The DPA is paid in fixed amount. In 2010, the DPA for a spouse is 220,870 won per year and for a child or parent is 147,230 won per year. The determined amount of the DPA is applied to the person who gains the pension right during the period between April of the year through to the following March. But the DPA is not provided in the case of an active old-age pension, a divided pension and a lump-sum disability compensation.

(3) Benefit Adjustment

A price indexation system is adopted to maintain the real value of the pension amount. Accordingly, the BPA and DPA, which are bases of calculating benefit amount, shall be adjusted in proportion to the rate of change in the Consumer Price Index every year. The adjusted pension amount is applied from April of the year through to the following March.

(4) Maximum Pension Amount

The monthly pension amount may not be larger than one of the following two: at the time of occurrence of a reason for benefit payment, the average of Standard Monthly Income (adjusted into the value of the year prior to the payment of pension) over the last 5 years of the insured period and the average amount of the Standard Monthly Income (adjusted into the value of the year prior to the payment of pension) during the total insured period, and thereafter the larger one of the two, each of which is adjusted based on the price fluctuation rate of the previous year. This is to keep the pension amount lower than income gained from economic activity so as to protect economically viable people from intentionally retiring early.

Depending on payment methods, National Pension benefits are divided into annuities and lump-sum benefits. Annuities include an old-age pension, a disability pension, a survivor pension, and a divided pension, and lump-sum benefits include a lump-sum refund and a lump-sum death payment.

(1) Old-age Pension

An old-age pension is designed to guarantee the insured person's old-age income when he/she becomes economically less active or inactive due to old-age. The old-age pension is paid to beneficiaries while they are alive, and is classified into the full, reduced, active, early, and special old-age pensions, depending on the age of first benefit payment, insured period, and participation in economic activities. A divorced spouse can be paid a divided pension. At present, the age eligible for an old-age pension is 60, but it shall be 61 years in 2013 and increase by one year every 5 years to be 65 years in 2033.

[(Full) Old-age Pension]

- A full old-age pension is paid to a person reaching 60 with an insured period of 20 years or more. However, a special occupation employee such as miner or fisherman is eligible for the pension even if his/her age is from 55 to less than 60. (Refer to "Voluntarily & Continuously insured persons" to know more about the special occupation employee)

- The pension amount is the one gained by summing the BPA and DPA.

- In addition, if an (full) old-age pensioner aged from 60 to less than 65 is engaged in income-earning activity, active old-age pension, which is calculated by applying the reduced rate based on age, is paid to him/her (in the case of the special occupation employee, from 55 to less than 60).

[Reduced Old-age Pension]

- A reduced old-age pension is paid to a person reaching 60 with an insured period from 10 to less than 20 years. In the case of the special occupation employee, it is paid even if his age is from 55 to less than 60.

- Reduced Old-age Pension
= (BPA × Payment Rate By Insured period) + DPA

Insured period	10 years	11 years	12 years	13 years	14 years	15 years	16 years	17 years	18 years	19 years
Payment rate	50%	55%	60%	65%	70%	75%	80%	85%	90%	95%

- In addition, if a reduced old-age pensioner aged from 60 to less than 65 is engaged in income-earning activity, an active old-age pension, which is calculated by applying the reduced rate based on age, is paid to him/her
(in the case of the special occupation employee, from 55 to less than 60) instead of the reduced old-age pension.

[Active Old-age Pension]

- The active old-age pension is paid to a person from 60 to less than 65 years of age who meets the requirement for the full old-age pension or reduced old-age pension and who participates in economic activities (in the case of the special occupation employee, from 55 to less than 60 years of age) instead of the (full) old-age pension or reduced old-age pension.

- Different rates are applied to the active old-age pension amount based on the benefit age, and the pension doesn’t include the DPA. Namely, the active old-age pension amount is the amount calculated by multiplying his/her Basic Pension Amount by the rate depending on the benefit age, and the reduced old-age pension amount is calculated by multiplying “the amount gained by multiplying the BPA by the payment rate based on the insured period” by the payment rate based on benefit age.

Benefit Age	60	61	62	63	64
Payment Rate	50%	60%	70%	80%	90%

※ Income earning activities : The old-age pension or survivor pension beneficiary is considered to be engaged in income earning activities if her/his income (total amount of real-estate rental income, business income and earned income) divided by the number of working months of that year exceeds the average monthly income over the past 3 years before receiving benefits.(Amount of "A" in the formula for calculating pension amount)

- "A" in 2010 : 1,791,955won

- Applied period : pension benefits from January to December 2010 can be suspended or paid at a limited rate according to the person's age.

- Applicable pension : old-age pension (Special old-age is not included), survivor pension(for a survivor pension beneficiary who is a spouse of the deceased and under 55 years of age)

[Early Old-age Pension]

- The early old-age pension is paid to a person aged from 55 to less than 60 with an insured period exceeding 10 years, if he does not participate in any economic activity.

- The early old-age pension amount comes with the DPA and is subject to differential rates depending on the age of first benefit payment. Namely, in the case of an insured period 20 years or longer, the pension amount is calculated by summing the DPA and the amount gained by multiplying the BPA by the rate based on the age of first benefit payment. In the case of the insured period of 10 to less than 20 years, the amount is calculated in the following way.

※ Early Old-age Pension
= (BPA × Payment Rate By the insured Period
× Payment Rate By age of first benefit payment) + DPA

Age of the first benefit payment	55	56	57	58	59
Payment Rate	70%	76%	82%	88%	94%

※ If the person applies for his/her pension on a date belonging to the month following the one in which he/she reaches the age of the first benefit payment, 0.5% per month should be added to the above payment rates.

- If an early old-age pensioner becomes reengaged in income-earning activity before reaching 60 years of age, not only will his/her early old-age pension be suspended, but he/she also has to be covered in the National Pension Scheme and pay contributions. And after he/she stops the income-earning activity, his/her pension amount is recalculated by adding the new insured period to the former one. On the other hand, if an early old-age pension beneficiary is engaged in an income-earning activity while aged from 60 to 64, it is not mandatory for him/her to participate in the scheme. However, during that period, he/she can receive an active old-age pension corresponding to the amount determined by multiplying the early old-aged pension by the above payment rate of the active old-age pension specified based on the age of the person .

[Special Old-age Pension]

- The special old-age pension program was designed to cover the elderly who cannot meet the 10-year requirement for an old-age pension in the early stage of the National Pension scheme history. Under this program, they can receive pension benefits after 60 years of age, if their insured period is 5 years or longer.

- In addition, the elderly aged from 60 to less than 65 have been given an opportunity of being covered under the Scheme twice before (in 1995 and in 1999) and the special old-age pension program is also applied to them.

- This pension amount is the amount determined by adding the DPA to the amount gained by multiplying the BPA by 0.25 for a 5-year insured period. An additional 5% of BPA is added for each one-year increase in insured period. The pension amount is not reduced even if they are engaged in income-earning activity while aged from 60 to less than 65.

[Division of Old-age Pension Right]

A person who has been married for at least five years during his or her spouse's insured period may be granted 1/2 of the pension amount corresponding to the marriage period, among his/her spouse's old-age pension(excluding the DPA), when falling under one of the following conditions:

- When a person reaches age 60 after having divorced from his or her spouse who is an old-age pensioner.
- When a person, after reaching age 60, is divorced from his or her spouse who is an old-age pensioner.
- When after a person reaches age 60, his/her ex-spouse is entitled to old-age Pension .
- When a person reaches age 60 after his/her ex-spouse is entitled to old-age Pension.

Once a person acquires the right to a divided pension, the entitlement of the divided pension is not affected by the termination or suspension to the former spouse's old-age pension right.

A divided pension, which is paid to a divorced spouse, is continuously paid to the beneficiary after the person remarries. Furthermore, when a person is entitled to the divided pension and the old-age pension at the same time, both pension benefits are paid to him/her.

(2) Disability Pension

The disability pension is provided to a person having physical or mental disability even after treatment of the disease or injury occurred during his/her insured period. Under the Scheme, the disability pension is paid during disability and the benefits level is determined on the basis of the degree of disability.

There is no required minimum insured period in the case of a disability pension. But a disability pension is not paid to the person who does not pay contributions faithfully. In other words, disability pension benefits shall not be paid to one who has not made contributions at all until the first medical examination date of the relevant disease or injury, or whose contribution period is less than 2/3 of the total period during which contributions should have been paid (except for the case where the unpaid period is less than 6 months).

[Determination of the Degree of Disability]

The degree of disability is determined by National Pension Service, and it is classified to 4 degrees depending on disability conditions. The degree of disability is determined on the basis of the day when any injury or disease as the cause of the disability is medically cured or such symptoms are fixed (completely cured) to the extent that no further treatment effect can be expected.

However, if the symptoms are not completely cured even 1 and a half years after the first medical examination of the relevant disease or injury taken to be the cause of the disability, the degree of disability is determined on the day when the 1 and a half years have passed since the first medical examination.

Further, the degree of disability is determined on the date of application for a disability pension when a person is not eligible for a disability pension on the date when 1 and a half years have passed since the first medical examination, but eligible for the pension prior to age 60 due to worsening of the disease or injury, or if a person losing the right to a disability pension due to the favorable turn of the disability conditions, becomes subject to the disability pension again before 60 years of age owing to worsening of the disease or injury at the time of obtaining the right to the disability pension.

[Benefit Levels]

The amount of disability benefit is determined by the degree of disability. To the persons falling under the 1st to 3rd degree, benefits are paid as annuities and, to those under the 4th degree, benefits are paid as lump-sum amount. Pension amount is the sum of the DPA and the amount gained by multiplying the BPA by the payment rate based on the degree of disability. The lump-sum disability benefits paid to the person falling under the 4th degree are the amount equivalent to 225% of the BPA.

※ Disability Pension
= (BPA × Payment Rate By Disability Degree) + DPA

Degree of disability	1st degree	2st degree	3st degree
Payment Rate	100%	80%	60%

※ Lump-sum disability benefit = BPA × 225% (no DPA)

[Change and Adjustment of Pension Amount]

The NPS reviews the degree of disability of the person entitled to a disability pension and, if there is any change in the degree, it will change the amount of the disability pension. Further, one who is entitled to a disability pension may request the NPS to adjust the disability pension amount if his/her disability is worsened. If another disability occurs, the disability pension is paid on the basis of the degree of the old and new disabilities combined. If the amount gained by combining the disabilities is less than the former one, the former shall be paid.

(3) Survivor Pension

[Payment of Survivor Pension]

If the current or former insured person falling under any of the following items dies, the survivor pension shall be paid to his/her surviving dependents.

- the old-age pensioner
- the disability pensioner with disability of the 2nd or 1st degree
- the insured person (in the case of insured persons with an insured period less than one year, entitlement is limited to death caused by disease or injury occurred during the insured period).
- the former insured person whose insured period is 10 years or more - the insured person with an insured period of less than 10 years, who dies within 2 years from the first medical examination made within 1 year after disqualification or during the insured period owing to the disease or injury occurred during the insured period.

There is no required minimum insured period for the survivor pension. But the survivor pension is not paid to the person who does not pay contributions faithfully. In other words, the survivor pension shall not be paid to a person who has not paid even one contribution at the time of the beneficiary's death or whose contribution period at the time of occurrence of a reason for benefit payment is less than 2/3 of the total period during which contributions should have been made (except for the case where the unpaid period is less than 6 months).

[Scope and Order of Survivors]

The survivor pension is paid to surviving dependents with the priority in the order of the spouse, children, parents, grandchildren, and grandparents. If there are 2 or more persons having the same order, the pension is equally distributed. And if the spouse's right to the survivor pension is extinct or suspended, the children supported by the current or former insured person at the time of his/her death succeeds to the right.

If the beneficiary's spouse acquires the survivor pension right, it is paid for 3 years from the time when the right occurred, and is suspended until the spouse reaches 55 years of age. But it is not suspended if he/she has the 2nd or 1st degree of disability, or is not engaged in income-earning activity, or supports the current or former insured person's children who are less than 18 years old or have the 2nd or 1st degree of disability.

In addition, to acquire the survivor pension right, one must have been supported by the current or former insured person at the time of his/her death and also must fall under one of the following categories.

- Spouse - Children and grandchildren aged less than 18 or having a disability of the 2nd or 1st degree - Parents and grandparents (including the spouse's parents and grandparents) aged 60 or over, or having a disability of the 2nd or 1st degree

[Benefits Level]

The amount of the survivor pension benefit is calculated by summing the DPA and the amount gained by multiplying the BPA by the payment rate based on insured period. The amount of survivor pension due to death of an old-age pensioner cannot exceed the old-age pensioner's pension amount.
Survivor Pension
= (BPA × Payment Rate based on Insured period) + DPA

Insured period	Less than 10 years	From 10 to less than 20 years	20 years or more
Payment rate	40%	50%	60%

[Lapse of the Right to Survivor Pension]

The right to a survivor pension lapses under one of the following conditions.

- When the entitled person dies.
- When the entitled person (spouse) remarries.
- When the entitled person (child or grandchild) is adopted, or the adoptive relationship ends.
- When the entitled person (child or grandchild) who does not have the 2nd or 1st degree of disability turns 18 years old.
- When the person who obtained the right owing to a disability no longer falls under the 2nd or 1st degree of disability.
- When the current or former insured person's baby unborn at the time of his/her death is born and comes to obtain the right (in this case, the right of the parents, grandchildren, or grandparents lapses).

(4) Lump-sum Refund

When the current or former insured person falls under one of the following categories, a lump-sum refund is paid to him/her or his/her survivor. The scope and order of survivors who can request a lump-sum refund is the same as in the case of a survivor pension. The right to a lump-sum refund is extinct if the beneficiary is covered again, or gain the right to an old-age, disability, or survivor pension.

- When a person whose insured period is less than 10 years reaches the age of 60.
- When a current or former insured person dies and a survivor pension is not paid.
- When a person loses his/her Korean nationality or emigrates to a foreign country.

A lump-sum refund is the amount of contributions(paid by the employee and the employer)plus the fixed interest.

In the case that the person who received a lump-sum refund regains an insured status, he/she may pay the amount equal to the lump-sum refund plus its interest to the National Pension Service by his/her choice. And the period corresponding to the amount paid shall be counted as an insured period.

(5) Lump-sum Death Payment

When a current or former insured person dies without leaving survivors eligible for a survivor pension or a lump-sum refund due to age or other reasons, a lump-sum death payment is paid to a spouse, children, parents, grandchildren, grandparents, brothers or sisters, in that order. However, a person whose whereabouts are unknown, due to being missing, etc, at the time of death of the person who is/was insured, is excluded. If there is no one falling under the above category, the lump-sum death payment is paid to a relative such as an uncle, aunt or cousin who is supported by the beneficiary at the time of his/her death . In addition, there is no age restriction for survivors who can receive a lump-sum death payment, differing from a survivor pension and a lump-sum refund. The spouse's parents and grandparents, however, are not eligible to receive a lump-sum death payment.

A lump-sum death payment is the amount equivalent to a lump-sum refund, but shall not exceed four times the larger of the deceased insured person's last SMI (adjusted to the value of the previous year to payment of the benefit) and the average SMI (adjusted to the value of the previous year to payment of the benefit) during his/her insured period.

When a pensioner has the rights to two or more benefits (including a lump-sum refund), only one benefit is allowed at his/her choice and the other benefits are suspended.

However, if the unchosen pension is a survivor pension or a lump-sum refund, a fixed amount is added to the amount of the chosen benefit.
When a person entitled to a disability or a survivor pension under the National Pension Act is also eligible for a disability or survivor benefit under the Labor Standard Act, the Industrial Accident Compensation Insurance Act, the Seamen's Act or the Accident Compensation Insurance Act for Fishing Boats and the Members of Fishing Boats, on the basis of the same reason, his/her pension under the Scheme is reduced by as much as a half of the pension amount.

Benefits are paid upon request of the person with the right to benefits. But in the case that the person with the right is a minor or an legelly incompetent, a legal agent can request and in the case that the person with the right cannot request because of unavoidable reasons such as staying abroad, or serving in the military or being imprisoned, his/her proxy may do so. Also, if there remains benefit unpaid when the beneficiary dies, it shall be paid to his/her surviving dependents at the time of his/her death.

Pensions will be paid on a monthly basis. Pension benefits for a certain month are paid to a pensioner on the last day of the month (on the preceding day if the last day is Saturday, Sunday or a holiday).

< Table 6> summarizes beneficiaries and benefit amounts by type of benefits as of May 31, 2010.

<Table 6-1> Status of Pension Benefit Payment

(Statistics of May 31, 2010, Unit: cases, million won, %)

	Total	Old-age Pension						Disability Pension	Survivor Pension
	Total	Total	Special	Reduced	Early	Full	divided	Disability Pension	Survivor Pension
Beneficia- ries	2,662,829 (100.0)	2,205,522 (82.8)	1,624,450 (61.0)	335,642 (12.6)	197,785 (74)	43,719 (1.6)	3,926 (0.2)	69,318 (2.6)	387,989 (14.6)
Amount	670,789 (100.0)	567,438 (84.6)	303,275 (45.2)	148,139 (22.1)	83,745 (12.5)	31,665 (4.7)	614 (0.1)	24,613 (3.7)	78,738 (11.7)

<Table 6-2> Status of Lump-sum Benefit Payment

(Statistics of May 31, 2010, Unit: cases, million won, %)

	Total	Lump-sum Disability Compensation	Lump-sum Refund	Lump-sum Death Payment
Beneficiaries	11,329 (100.0)	261 (2.3)	10,320 (91.1)	748 (6.6)
Amount	38,760 (100.0)	2,758 (7.1)	34,085 (87.9)	1,917 (5.0)

<Table 6-3> Total Number of Beneficiaries and Benefits Payment Amount by Year

(As of the end of each year, Unit: cases, million won, %)

		2004.12	2005.12	2006.12	2007.12	2008.12	2009.12
Total Benefit	Beneficiaries	1,533,059	1,757,674	1,985,502	2,074,060	2,348,067	2,578,111
Total Benefit	Amount	2,914,015	3,584,901	4,360,239	2,919,104	555,641	658,997
Pension benefit	Beneficiaries	1,424,083	1,651,681	1,858,769	1,997,970	2,332,455	2,565,947
Pension benefit	Amount	2,568,966	3,210,044	3,899,369	2,647,504	514,887	616,707
Lump-sum benefit	Beneficiaries	108,976	105,993	126,733	76,090	15,612	12,164
Lump-sum benefit	Amount	345,049	374,857	460,870	271,600	40,754	42,290

Payment of benefits will not be made for unjust requests involving insured person's self-induced disease or injury, or accidents causing such damages, or insured person's death intentionally induced by his/her survivor(s).

Furthermore, if the person with the right to benefits does not submit required documents or other materials, or follow the request of medical examination, or order of medical treatment without any just reasons, payment of all or some of benefits may be suspended.

When changes in benefit entitlement, such as death or remarriage of the person entitled to an old-age pension, a disability pension, or a survivor pension, or changes in benefit amount, such as receipt of compensation benefits under the Industrial Accident Compensation Insurance Act, the NPS receives the relevant reports from the concerned pensioner or check the facts to ensure the reasonable payment of benefits.

The right of pensioners to claim a benefit is valid for 5 years beginning from the initial date of entitlement. For an application after the elapse of 5-year period, the benefit except for a lump-sum benefit is retroactively paid for 5 years from the date of application.