Health and Welfare Minister Park Neung-hoo suggested this week it would be virtually impossible to pass a bill on reforming the pension system during the current National Assembly’s term.
He said it might be senseless to submit any additional reform proposals to the parliament, as all lawmakers are preoccupied with preparations for the upcoming general election on April 15. In his view, serious parliamentary deliberations on reform bills will be possible only after the next Assembly begins a four-year term in June.
But Park and other government officials are in no position to blame legislators with regard to the stalled national pension scheme reforms.
President Moon Jae-in’s administration itself has virtually abandoned serious efforts to overhaul the system that is deemed increasingly unsustainable in the long term. Last year, it submitted a set of proposals to the parliament and let lawmakers choose one of them or work out separate reform measures.
All the proposals fall short of ensuring the long-term sustainability of the pension system. In an apparent bid to avoid falling prey to public discontent, the proposed options envision that most of the planned increase in insurance premiums would come after Moon’s five-year tenure ends in 2022.
Over the past year, there has been little progress in parliamentary deliberations on pension reforms, with lawmakers asking the government to present a single option worth substantial discussion.
In August, a panel under the Economic, Social and Labor Council suggested a separate set of proposals for pension reforms.
The first option calls for freezing the income replacement rate, which is set to be lowered to 40 percent by 2028 from the current 45 percent, and raising insurance premiums from 9 percent of wages to 12 percent in the coming decade. Under the other proposals, the income replacement rate would be reduced as planned, with insurance premiums being raised to 10 percent or remaining unchanged.
Lawmakers have also given little consideration to the proposals, which go little further than the options suggested by the government.
Both the ruling party and opposition parties have been reluctant to pass an effective reform plan accompanied by a significant rise in insurance premiums ahead of next year’s elections. On the other hand, they do not want to be blamed for enacting a substandard measure that may not make the pension scheme sustainable in the long term.
It is not guaranteed that the next Assembly will actively push to pass a pension reform bill with the rival parties setting sights on the presidential election in 2022.
Letting pension reforms drift further would place an undue burden on future generations.
Earlier last year, the National Pension Service, with 708 trillion won ($600.5 billion) in assets as of August, forecast that its fund would be depleted by 2057 under the current system. Raising total insurance premiums to 12 percent of wages while retaining the income replacement rate at 45 percent would delay the depletion of the fund by six years at best.
The fund could be exhausted even earlier, given the plummeting birthrate and rapidly aging population.
According to a study by the National Assembly Budget Office, pension subscribers’ proportion of the country’s population is projected to fall from 42.9 percent this year to 27.3 percent in 2060, while the recipients’ proportion is forecast to soar from 9.4 percent to 37.8 percent. If reforms continue to be postponed, subscribers will have to pay more than a quarter of their income in insurance premiums.
Significant reforms carrying a substantial rise in insurance premiums should be made to ensure a balanced sharing of the burden between younger and older generations within three to four years before the country’s baby-boom generation born between 1955 and 1963 leave the workforce.
A survey conducted by a state-run think tank last year showed more than 45 percent of respondents opposed raising national pension fees, compared with 23.6 percent in favor of it.
It requires bipartisan efforts to overcome this negative public sentiment and push through pension reforms. During the campaigns for the next parliamentary elections, the main political parties need to make a common pledge to complete pension reforms within the term of the next Assembly.
The Moon administration should also be more active in working out a concrete plan for ensuring the long-term sustainability of the pension scheme, which could serve as a solid base for the legislative process.