The National Pension Service announced last week that the number of its beneficiaries exceeded 5 million in April, 33 years after the pension system was introduced.
It seemed to be striking a celebratory tone in making the announcement. But concerns are mounting over the long-term sustainability of the state pension fund.
The gap between the numbers of beneficiaries and subscribers paying insurance premiums is expected to widen at an accelerating pace in the coming decades.
According to data from the NPS, the number of pensioners is projected to rise from 5.22 million in 2020 to 16.01 million in 2050, while the corresponding figure for subscribers is forecast to drop from 22.04 million to 14.95 million over the cited period.
A study by the National Assembly Budget Office predicted that pension subscribers’ proportion of the country’s population would fall from 42.9 percent in 2019 to 27.3 percent in 2060 whereas recipients would soar in proportion to the total, from 9.4 percent to 37.8 percent.
The parliamentary research arm warned last year that the state pension fund, which amounted to 730 trillion won ($596 billion) as of end-2019, would be depleted by 2054 if the current scheme remained unchanged amid the rapid aging of the population coupled with a plummeting birthrate.
The rate of return on the fund is also a key factor in predicting when it will be exhausted.
Experts estimate that the NPS, the world’s third-largest institutional investor, suffered a loss of 47 trillion won on its investments during the first quarter of this year mainly due to a steep fall in stock prices amid the global spread of the novel coronavirus.
Given that the full economic impact of the COVID-19 pandemic has yet to be felt, this loss could increase further.
Significant reforms 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 boomers -- those born between 1955 and 1963 -- leave the workforce.
If reforms continue to be postponed, subscribers may have to pay more than a quarter of their income in insurance premiums.
President Moon Jae-in’s administration has virtually abandoned serious efforts to overhaul the pension system, which is deemed increasingly unsustainable in the long term.
In 2018, 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 fell short of ensuring the long-term sustainability of the pension system. In an apparent bid to avoid provoking public discontent, the proposed options envision that most of the planned increase in insurance premiums would come after Moon’s five-year term ends in 2022.
In August, a panel under the Economic, Social and Labor Council suggested a separate set of proposals for pension reforms, which went little further than the options suggested by the government.
The current parliament, whose four-year term ends May 29, has made little progress in deliberating on pension reforms, with lawmakers having asked the administration to present a single option worth substantial discussion.
In the year leading up to the April 15 general election, legislators from both the ruling and opposition parties remained reluctant to pass an effective reform plan accompanied by a significant rise in insurance premiums. They also wanted to avoid being blamed for enacting a substandard measure that could not make the pension scheme sustainable in the long term.
In the next National Assembly, the passage of a reform bill will depend entirely on the ruling Democratic Party of Korea, which secured a dominant majority in the latest parliamentary election. But with the next presidential election less than two years away, the ruling party is unlikely to work very hard to achieve an unpopular reform measure. A 2018 survey by a state-run think tank showed more than 45 percent of respondents opposed increasing payments into the national pension, compared with 23.6 percent in favor of it.
The economic hardships caused by the coronavirus pandemic will make it harder to push for an effective pension reform that requires a significant increase in insurance premiums.
Nevertheless, the government and the ruling party should not let pension reforms drift further in order not to place an undue burden on future generations.
The administration should work 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.
The conservative main opposition United Future Party is also urged to cooperate with the ruling party on this crucial and overdue reform task, rather than step aside.