The Korea Economic Research Institute warned that people born after 1990 may not receive national pension at all unless the scheme is reformed.
The institute affiliated with the Federation of Korean Industries raised the need for the reform of the system on the grounds of its analysis of data compiled by the Organization for Economic Cooperation and Development and Statistics Korea.
The nation’s elderly poverty ratio reached 40.4 percent in 2020. The figure is the highest among the 37 OECD members it researched and 2.8 times as high as 14.4 percent, the average for the G5 advanced economies -- the US, Japan, the UK, France and Germany.
Worse still, Korea’s population is aging rapidly. The share of the population aged 65 and older is expected to surge from the current 17.3 percent to 37.0 percent in 2045, surpassing the world’s No. 1, Japan, with 36.8 percent.
The problem is that reform of public pension systems created to guarantee income security for the elderly is sluggish, while societal aging and elderly poverty is getting increasingly serious.
Korea’s national pension system is structured in a way that means its funds will be depleted faster than those of the G5.
Contributions by both employees and employers in terms of the percentage of monthly income is 9.0 percent, much less than in some other wealthy countries.
Nevertheless, payment from the national pension starts at age 62, earlier than 65 to 67 for the G5. Korea is scheduled to raise the age to 65 from 2033, but G5 are set to raise it to 67 or 68 after 2027.
Employees need to pay into the national pension for at least 20 years to get a decent amount of pension, about 10 years shorter than the G5 average of 31.6 years.
If the national pension scheme is maintained as is, it is forecast to go into deficit in 2039 and be depleted in 2055. In 2055, those born in 1990 will reach 65, the age when they can begin to claim pension benefits, but the pension fund will have dried up.
This is shocking for those in their 20s and 30s who have contributed part of their incomes to the national pension scheme each month.
If the government plans to keep paying the national pension to them and their subsequent generations, their contributions must be increased, the pensionable age raised, or pension payouts reduced.
To make matters worse, pension funds for government employees and service members are expected to run a deficit of 61 trillion won ($51.1 billion) and 33 trillion won, respectively, over 10 years from 2021 to 2030. The deficits are replenished with tax. People have triple burdens of filling up pension funds for government employees and soldiers as well as contributing to the national pension fund.
Despite the situation, the administration under President Moon Jae-in has avoided revamping the national pension scheme. Rather, it increased the number of government employees by 110,000.
The administration drew up several reform scenarios and handed them over to the National Assembly, requesting it make a choice. Then the administration sat on its hands even as discussions made little progress in the Assembly.
Measures to replenish the pension fund are unpopular, but they are unavoidable. It is a political hot potato, but it is irresponsible to carry over the job of reforming pension schemes to the next government.
Presidential candidates are irresponsible, too. They seldom touch on pension reform because they do not want to lose votes. On the contrary, they are trumpeting populist pledges that may cost trillions or tens of trillions of won.
It is painful to contribute more and receive less or later, but pension reform must not be delayed any longer.
By Korea Herald (firstname.lastname@example.org