Ahead of a public hearing Friday on proposed reforms to the national pension scheme, people are speaking out against the changes.
The hearing will deal with some of the recommendations that a committee of independent experts handed down to the government. The committee’s role is to offer long-term projections every five years for the National Pension Fund, and to recommend systemic improvements. The recent suggestions included raising premiums, extending the term during which people are required to pay premiums, delaying the age of eligibility for pension benefits, and reducing pension benefits.
In response, hundreds of people have posted angry messages on the Cheong Wa Dae website, accusing the government of mismanaging pension funds and pouring their hard-earned money down the drain. Some petitioners even went so far as to call for the abolition of the National Pension Service. In a statement issued Sunday to address the criticism, the health and welfare minister said the recommendations were not government plans but mere draft proposals.
These developments speak volumes about how sensitive the public is where the National Pension Service is concerned.
According to the advisory panel, the National Pension Fund is likely to be exhausted by 2057, three years earlier than previous estimates had led the public to believe. The reasons for this apparent trend can be expected to invite scrutiny, and the government will have to answer tough questions: Does the blame lie solely with demographic factors such as an aging population and falling birthrate? Or has poor management of the funds hastened their depletion?
In the face of mounting public criticism, the government will have difficulty enacting any reforms without answering these questions and without clearly accounting for the low return on investment.
It is unfair to raise national pension premiums at a time when the tax burden is continually increasing. Such a move would impact not only employees and employers, but also self-employed people and retirees. If pension benefits are cut when the existing amount is widely seen as inadequate, discontent will only grow. The burden that younger people carry should not be underestimated.
Given these realities, the government must adopt a prudent approach to pension reform. It should act only after a social consensus is reached on such matters as whether to delay the retirement age, whether employers should be required to contribute a greater share of their employees’ pension benefits and how to address youth unemployment.
In view of those questions, the committee’s recommendations appear overly simplistic.
Of course the pension system needs to be financially sound, but any increase in premiums must be accompanied by efforts to raise portfolio returns. Pressure to raise premiums will be alleviated if investment returns rise.
Considering that people stake their futures on the national pension system, it is critical we sustain it. It is no simple matter of calculating prospects and replenishing accordingly. To sustain the fund, the pension system and its management must be seen as independent, professional and politically neutral.
However, the government recently adopted a “stewardship code,” which will enable it to intervene in the management of companies whose shares it buys with pension money.
It was absurd for the National Pension Service to relocate its investment management headquarters to Jeonju, North Jeolla Province -- far away from Seoul, the nation’s financial center -- for political reasons. The posts of executive fund director and chief investment officer have been vacant since the launch of the Moon Jae-in administration. Talented asset managers have left as well.
As a result, the National Pension Fund yielded returns as low as 1.7 percent from January through April. Last year it gained 7.3 percent, but those gains were meager compared to those realized by the Government Pension Fund of Norway (13.2 percent), the Canada Pension Plan fund (11.6 percent) and California Public Employees’ Retirement System (11.2 percent).
If premiums increase, if people are forced to pay premiums for even more years and if benefits are reduced, the fund could easily be made sustainable. But before considering such measures, the government must try to find ways to raise its portfolio returns. To do so, it will need to ensure that fund managers are truly independent, and it should consider moving the investment management headquarters back to Seoul.