Present a single pension reform plan

The government must first devise a single pension reform plan.

The National Pension Service’s fifth committee on finance presented 18 sets of scenarios for pension reform. The options have sharply enlarged from two to three sets proposed by the earlier four committees. The outcome is disappointing after the nine-month-long deliberation by 14 pension experts. Its guidance could have been clearer if the recommendations were streamlined to one or two.

The committee did come to an agreement that people must pay more so the fund will not run out of money 70 years later. It proposed lifting the current premium fixated at 9 percent over the past 25 years by 0.6 percentage points annually from next year. At this rate, the premium will go up to 12 percent in five years, 15 percent in 10 years and 18 percent in 15 years. Another option is to push up the pension reception year by one year every five years so that the starting age becomes 65 by 2033 from the current 63 — and becomes 68 by 2048. Another option is to raise the fund return rate by 0.5 percentage points and 1 percentage point.

Under various scenarios, the fund will eventually be depleted by 2082, even after lifting the premium to 18 percent. Because pension reform was deferred under the last government, sustaining the fund for the next seven decades has become difficult even when the premium is doubled. Korea has to consider pushing back the receiving year. But the idea of raising the premium up to 18 percent won’t be easy to accept due to the impact on households and the economy. The combination of the premium at 15 percent, the receiving year pushed back to 68, and the increase of the return rate target by 1 percentage point could be most plausible.

The committee clashed over the increase in the income replacement rate. But to raise the coverage rate, the premium must go up higher than the 12, 15 or 18 percent increases. Even when the replacement ratio increases, the pension benefit won’t increase that big or substantially relieve the senior poverty rate. The proposal to concentrate basic pensions on the low-income class will be more realistic.

The government has to present a reform proposal to the legislature in October. The governing party could be tempted to delay it ahead of next year’s parliamentary elections. The government must come up with a single scheme proposal, unlike the last government, which presented multi-optional proposals. President Yoon Suk Yeol pledged to defend the budget from voting-buying spending. As pension reform is imperative for the future generation, it must not be victimized by the election. The government must also prepare the multi-layered old age security system and integration of the national pension with the government employee pension fund. It must first devise a single pension reform plan.