None of the four proposals announced by the government last week goes far enough to ensure the long-term sustainability of the national pension plan, which is under increasing strain. In August, the National Pension Service projected that its fund would be depleted by 2057 under the current system.
Indeed, the first proposal is to leave the pension arrangement intact, with the income replacement rate set at 40 percent while insurance premiums would continue to account for 9 percent of wages. The basic pension paid to 70 percent of people aged over 65 would be raised 50,000 won in 2021, to 300,000 won ($265) per month.
The second proposal calls for an additional increase of 100,000 won in the basic pension, beginning in 2022, with no other real changes to the state pension plan.
The third and fourth proposals envisage higher income replacement rates for 2021 -- 45 percent and 50 percent, respectively. Insurance premiums would rise to 12 percent of wages under the third proposal and 13 percent under the fourth over a time span of 10 to 15 years.
By suggesting a range of easygoing options, President Moon Jae-in’s administration has virtually abandoned serious efforts to overhaul the country’s pension system, which is placing an undue burden on future generations.
Explaining why the status quo was included as one of the options, Health and Welfare Minister Park Neung-hoo cited a survey showing that nearly half of all respondents wanted the pension plan to remain unchanged. His answer felt like an inadvertent acknowledgment that the Moon administration intends to bolster retirement incomes for the graying generation while turning a blind eye to the long-term sustainability of the pension system.
Raising insurance premiums to 12 or 13 percent of wages and increasing the income replacement rate to 45 or 50 percent would delay the depletion of the pension fund by five or six years at the most.
The fund could be exhausted even earlier, given the plummeting birthrate and the accelerating pace at which the population is aging.
In an attempt to alleviate growing concerns among younger subscribers, the government said last week that it planned to clarify the state’s responsibility for pension payments within the law. But a clause making it mandatory for the state to rectify shortfalls by reinforcing the fund with taxpayers’ money makes little sense. After all, people over 65 are expected to account for nearly half the population around 2057 -- by then, it might be virtually impossible to collect any more from the nation’s dwindling workforce.
Financing a more expensive basic pension after 2022, when President Moon leaves office and when payouts are expected to cost more than 30 trillion won, would also exceed the means of his successor’s administration.
Furthermore, under the proposals from the Health and Welfare Ministry, increases in insurance premiums for the most part would be imposed only after the end of Moon’s term. Apparently, this is a way to avoid becoming the target of public discontent.
The government is scheduled to submit its non-reform proposals to the parliament later this month, leaving it up to lawmakers to decide which one is best.
This is tantamount to dereliction of duty, as the overhaul of the pension system is long overdue. The government has an obligation to take the lead in ensuring a more balanced sharing of burdens between the older and younger generations.
It is obvious that the only way to make the system sustainable over the long term is a substantial increase in insurance premiums. While insurance premiums in South Korea have been frozen at 9 percent of wages for the past two decades, the corresponding figures have risen to 25.8 percent in the UK, 22.3 percent in Norway, 18.7 percent in Germany, 18.3 percent in Japan and 13 percent in the US.
The upcoming parliamentary deliberations can hardly be expected to produce a more effective reform plan, one inevitably accompanied by a significant hike in insurance premiums, because neither the opposition parties nor the ruling party are likely to take such an unpopular initiative ahead of the 2020 general elections.
The prolonged delay in implementing genuine reform is pushing us all closer to the edge of a cliff.