[Edaily Choi Jeong Hoon Reporter] Mr. Kim, a 40-something office worker who visited his parents’ home in Goyang, Gyeonggi Province, for the Chuseok holiday, found himself increasingly worried after bringing up the topic of retirement expenses. His parents own an apartment valued at around 500 million won, where they have lived for over 20 years, but their combined monthly income from the National Pension is just over 1 million won. After paying for maintenance fees, food, and medical expenses, their living expenses are tight, so their children often chip in.

“Looking just at the value of their home, they’re not exactly without assets, but my parents don’t actually have much cash to spend,” Mr. Kim said. “At the same time, it’s hard to ask them to sell the home they’ve lived in for so long and move to an unfamiliar place, so I’m looking into housing annuities.”

The housing annuity is a program that elderly people who “own a home but lack disposable cash” can consider. It involves using one’s home as collateral to receive a monthly annuity while continuing to live there. The subscriber and their spouse are guaranteed lifelong residency, and even if one person passes away first, the surviving spouse can continue to receive the same amount. Since the government guarantees the payments, there is no risk of the annuity being interrupted.

The amount receivable varies depending on the parents’ age and the home’s value. For married couples, the calculation is based on the younger spouse. If a couple enrolls in the lifetime payment or fixed-amount plan for a standard home after March of this year—assuming the younger spouse is 70 years old and the home is valued at 500 million won—they would receive 1,539,000 won per month. When combined with Mr. Kim’s parents’ National Pension, their monthly retirement income would increase to around 2.5 million won.

Even for the same 500 million won home, the monthly payment is 1,053,000 won if the enrolment age is 60, 1,264,000 won at 65, 1,906,000 won at 75, and 2,416,000 won at 80. The later you enroll, the shorter the expected payment period, resulting in a higher monthly payment. Conversely, if you enroll early, the monthly amount you receive is smaller, but you can receive the pension for a longer period.

Benefits have also been expanded starting this year. Monthly payments for new applicants since March have increased by an average of 3.13%. Based on the average subscriber—a 72-year-old with a home valued at 400 million won—the monthly payment rose by 41,000 won, from 1,297,000 won to 1,338,000 won. The increase does not apply retroactively to existing subscribers.

The initial guarantee fee rate has been lowered from 1.5% of the home’s value to 1.0%. For a home valued at 400 million won, the initial guarantee fee applied to the outstanding loan balance has decreased from 6 million won to 4 million won. However, the annual guarantee fee rate applied to the outstanding loan balance has increased from 0.75% to 0.95%.

To enroll, one spouse must be 55 years of age or older, and the combined publicly assessed value of the homes owned by the couple must not exceed 1.2 billion won. The publicly assessed value is used to determine eligibility, while the actual monthly payment is calculated based on data from the Korea Real Estate Board, KB market prices, or appraised values. Even if the market value exceeds 1.2 billion won, the pension amount is capped at 1.2 billion won. Even homeowners with multiple properties can enroll if the combined assessed value of their homes does not exceed 1.2 billion won.

Parents who own a low-priced home should consider the preferential plan. This plan is available to couples where at least one spouse receives the Basic Pension and the couple owns only one home with a combined market value of less than 250 million won. If the market value is less than 180 million won, the monthly payment can be up to approximately 25% higher than under the standard plan. An average Preferred Plan subscriber—a 77-year-old with a home valued at 130 million won—receives 654,000 won per month.

From the children’s perspective, inheritance issues may be of primary concern. When both parents pass away, the home is sold to settle the pension payments, interest, and guarantee fees received up to that point. If the proceeds from the sale exceed the outstanding loan balance, the remaining funds go to the heirs, such as the children. Conversely, even if the parents live long enough that the total amount received exceeds the home’s value, the children are not required to cover the shortfall.

Starting this June, if there are unavoidable circumstances—such as medical treatment, admission to a long-term care facility, or caring for a child—you can enroll in the housing pension program even if you do not live in the home, provided you obtain approval from the corporation. Depending on the collateral arrangement, it is also possible to rent out the vacant home and receive both the housing pension and rental income.

There are also points to note. Even if the home’s value rises significantly after enrollment, the monthly payment amount will not increase. If you terminate the contract early, you must repay all pensions and interest received to date in a lump sum, and you cannot re-enroll using the same home for three years. For the fixed-amount plan, monthly payments are not automatically adjusted upward even if inflation rises.

A financial industry official stated, “A housing pension is not simply a product where you hand over your home and receive a pension,” adding, “It is a means of utilizing retirement assets that requires considering your parents’ living and medical expenses, future housing plans, and the assets to be left to their children.”