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[Editorial] Pension reform

Rival parties must focus on pension reform, revise law by May to prevent further delay

By Korea Herald

Published : April 24, 2024 - 05:30

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As South Korea rapidly ages, the national pension fund is expected to be drained by 2055 if no changes are made to its structure. The special parliamentary committee for pension reform is currently reviewing two reform plans.

Plan A is about paying more in premiums and receiving a greater pension. It calls for raising the premium rate from the current 9 percent to 13 percent, and the income replacement ratio from 40 percent to 50 percent. Under Plan A, the national pension fund will be depleted by 2061, and by 2093, its accumulated deficit would be some 702.4 trillion won greater than the size of the deficit estimated under the current system.

Plan B is about keeping the income replacement ratio at 40 percent while raising the premium rate to 12 percent. Under Plan B, the accumulated deficit by 2093 would be 1.97 quadrillion won less than the amount expected under the current pension structure.

Poll results released on Monday by the special committee showed that 56 percent of 492 citizen representatives picked Plan A over Plan B. Only 42.5 percent chose Plan B. Eighty percent of the respondents agreed to the proposal to raise the maximum age for joining the national pension plan from the current 59 to 64. National pension holders born in 1969 or later will start receiving pension payouts from age 64.

Pension reform has drifted for years as past administrations dragged their feet on the unpopular task, which carries with it little short-term political benefits. The Yoon Suk Yeol administration has vowed to get it done but has been far from daring. An advisory committee threw some 24 reform plans at the government, and the government handed over a bland blueprint that lacks specific numbers for the income replacement ratio or the premium rate to the parliament in October. Hence, the special committee tabled Plans A and B which experts view as "weak" as they merely delay the pension fund’s depletion by six to eight years.

Simply put, pension reform is a matter of priorities -- financial stability of the fund or the level of post-retirement income. In the past four rounds of public debate on pension reform, there were heated arguments over whether to keep the income replacement ratio at 40 percent or raise it to 50 percent. Obviously, everyone would want to receive more than they paid.

But people should keep in mind that “pay more and receive more” entails greater financial burden to future generations. Plan A would increase the accumulated deficit by 702.4 trillion won, while Plan B would reduce it by nearly 2 quadrillion won. A pension reform should be aimed at easing the financial burden on future generations, not making it worse.

The national pension reform cannot be completed simply by adjusting the income replacement ratio and the premium rate. In the long run, the National Pension Service needs to be integrated with the Government Employees Pension and the Military Pensions, where over 10 trillion won in state funds are poured in annually. The basic pension, paid 100 percent by the government to about 70 percent of people aged 65 or more with less than a certain amount of income, also needs an overhaul.

In the aforementioned poll of citizen representatives, 52.3 percent said the rate of basic pension recipients should be kept at the current 70 percent of seniors, while 45.7 percent said it should be reduced to the bottom 50 percent in income brackets. Some 24.4 trillion won in taxes will be spent on just basic pension this year. As pension reform encompasses issues of extending the legal retirement age and the legal definition of senior citizens, wider public discussions are necessary.

The ball is now back in the parliament’s court. Ruling and opposition parties must find a reasonable solution that is best for the nation in the long run. They shouldn't worry about their popularity now that the general election is over. They must revise the National Pension Act before the 21st National Assembly’s term expires on May 29 because otherwise, the 22nd National Assembly has to start from square one, further delaying the reform.