South Korea to unveil national pension reform plan in October

[Photo by Yonhap]

The South Korean government plans to bring forward its projection of when funds in the national pension will be depleted in efforts to reform the country’s pension system as the country comes under severe financial stress amid low fertility and aging population.

The government will “pursue a pension reform that ensures financial sustainability, inter-generational fairness and old-age income,” the Ministry of Health and Welfare said on Monday. The ministry said it plans to speed up reform talks to come up with a final plan by October this year.

President Yoon Suk-yeol, whose priority has been pension and health insurance reforms, defined these two as “universal welfare” as he was briefed on the pension plan by the ministry. Yet, he said each individual will still have to cover parts of the cost and “a thorough, scientific approach” is needed.

“Again, I want to make it clear that ideologies, politics and elections make it hard for our government to fulfill the national duty to provide true welfare to the people,” Yoon said.

The government’s fiscal estimate to be released this month is expected to include when national pension funds will be exhausted. In its fourth fiscal projection in 2018, the national pension was predicted to turn negative in 2042 and be completely depleted in 2057. Meanwhile, the National Assembly Budget Office projected the funds to exhaust even earlier in 2055.

[Photo by Yonhap]

However, given the unfavorable macroeconomic conditions as pension expenditure rose the most in 24 years following last year’s soaring inflation and aging population progresses at a faster pace than expected, pension funds are projected to deplete at least one to two years earlier than the 2018 forecast. The Special Committee on Pension Reform of the National Assembly, once its private advisory commission reports the pension reform draft by the end of this month, will finalize the bill after collecting public opinion by the end of April. Aside from the bill, the government plans to submit a pension reform plan of its own to the National Assembly by October.

The Health Ministry said it will disclose the entire process of pension reform talks transparently. It also plans to hold a seminar among different regions and age groups and a public debate in the course of preparing the reform plan.

In its interim report, the National Assembly’s private advisory commission proposed a “parametric reform” that adjusts the national pension insurance premium rate of 9 percent and income replacement ratio of 40 percent as part of the pension reform. The commission also disclosed views that the age eligibility for pension benefits should be raised to 67 years old from the current plan to gradually increase it to 65 by 2033 or the upper age limit for compulsory subscription should be raised from the current 59.

The “Health Insurance Comprehensive Plan,” the first health insurance reform plan of President Yoon’s administration, will be announced in September after deliberation by the Health Insurance Policy Deliberation Committee. The Health and Welfare Ministry plans to accelerate the process by operating a regular consultative body with the medical community on key policies, such as institutionalizing non-face-to-face treatment and increasing the capacity of medical schools to accommodate more students. The ministry will also seek for “preschool integration” to merge daycare center and kindergarten courses. Additionally, social services such as nursing and child care will be expanded to the middle class.