Public favors higher pension contribution, future payout

A small majority of those surveyed favor a 4-percentage-point increase in the contribution to the National Pension Service, with an increased payout in the future.

The National Pension Service's local head office for the northern Seoul region located in Seodaemun District, western Seoul, on November 22, 2023 [NEWS1]

Koreans favor a 4-percentage-point increase in contributions to the state pension fund and a bigger future benefit rather than a 3-percentage-point increase with the payout frozen, according to a survey by a parliamentary committee.

The result, announced on April 21, has stoked controversy over whether it represents or serves the interests of the larger public, with opponents criticizing the higher-payment-higher-return option as shortsighted while advocates demand respect for the democratic process.

A public consultation body under the parliamentary special committee on pension reform conducted the survey on 500 Koreans aged 18 and older, randomly selected in proportion to the country’s demographic composition, asking which of two state pension reform plans they preferred after four rounds of debate in April.

The first option is to increase the contribution rate paid into the National Pension Service from the current 9 percent of a subscribed person’s monthly income to 13 percent.

In return, the National Pension Service will also raise “the combined income replacement rate” — the pension received relative to the recipient’s income — from the current 40 percent to 50 percent. This option focuses on upping the pension for subscribers in the future.

The second option is to increase the contribution rate from 9 percent to 12 percent, 1 percentage point lower than the previous option, but keep the income replacement rate at the current level of 40 percent. It will guarantee stabler and longer-lasting operation of the National Pension Service, as Korea’s shrinking population poses a threat to the state pension’s long-term fiscal sustainability.

The survey result showed that a majority, or 56 percent, preferred the first option and the larger future compensation it would entail rather than bolstering the long-term fiscal soundness of the National Pension Service. The second option was chosen by 46.2 percent, while the remaining 1.3 percent said that they were unsure.

The parliamentary committee on pension reform will come up with a draft bill based on the survey. The bill needs to be passed within the incumbent National Assembly’s term, which ends on May 29.

However, it is likely to face a rocky road, as the liberal Democratic Party (DP) is standing behind the first option, while the government and the conservative People Power Party (PPP) are against it.

The Ministry of Health and Welfare issued a statement following the committee’s announcement, saying that it is “committed to achieving sustainable pension reform for the future,” hinting at opposition to legislation based on the survey result.

During the debates, experts behind the two options came forward to explain the details and answered questions from the public through Q&A sessions. The second option was favored by the audience during the sessions, yet the result was upended in the final survey.

It is the first time the country has incorporated such a public consultation process in a pension reform discussion.

“Even when the income replacement rate is upped to 50 percent, it will take effect 40 years later from now, and it will only work in favor of full-time, high-paid workers,” said Yang Jae-jin, professor of the Department of Public Policy and Management at Yonsei University.

“The first option goes against the principle of fiscal soundness, and will only increase the burden on younger generations,” said Yang.

In a scenario in line with the first option, the accumulated deficit is expected to grow by 702 trillion won ($510 billion) by 2093, while the second option may reduce the cumulative deficit by 1,970 trillion won, according to an estimation by the National Assembly's Budget Office.

The pension reserve is forecast to run dry by 2061 under the first scenario, which may result in a steep hike in the contribution rate to up to 43.2 percent by 2078.

Yoon Seok-myeong, a researcher emeritus of the Korea Institute for Health and Social Affairs, argued that “if the pension reform conforms to the first option, it will not be a mere change for the worse; rather, it will be a total disaster.”

Kim Yeon-myeong, co-chair of a consultation body under the pension reform committee, suggested during a press briefing that “with the first option, it will be impossible to finance the pension service through contributions, so it would be necessary to consider pouring in government funding in the mid to long term.”

With some academics openly criticizing the survey as “misleading” and “biased,” Public Pension for All, a civic group consisting of some 306 organizations, issued a statement saying that “an equal number of experts representing each side took part in the discussion, with an equal amount of time allotted for presentations and the Q&A segment.”

BY SHIN SUNG-SIK, SHIN HA-NEE [shin.hanee@joongang.co.kr]