Half-Baked Reform

More Drastic Steps Needed for Civic Servants' Pension

A plan to reform the pension scheme for civil servants is far short of expectations. Without doubt it shows the government's lack of will to drastically reduce a snowballing deficit of the pension fund. The highlight of the plan is to raise individuals' monthly pension premiums by 27 percent gradually by 2012, while slashing pension benefits by an average 9.5 percent. The minimum age of retirees eligible for pension benefits will be raised from 60 to 65. Ostensibly, the package looks good. But it is nothing but a stopgap measure.

First, the reform bill is not enough to keep afloat the cash-strapped pension scheme for public servants. The fund has swung into the red since 1993. And the government began to inject taxpayer money into it to make up for the rising deficit in 2001. It plans to pour 1.2 trillion won ($1 billion) of the state budget into the fund this year alone. Critics point out that the bill cannot be a proper prescription for the loss-making fund. It is really disappointing that the government has failed to press ahead with the original reform draft unveiled in January 2007.

The draft called for a 50 percent hike in pension premiums and a nearly 50 percent cut in benefits. But, the government had to make compromises in the face of a strong backlash from civil servants, especially unionized public workers. Policymakers claim that the reform package will reduce the pension fund's shortfall by 37 percent over the next 10 years. However, skeptics warn that it might suffer from an accumulated deficit of up to 30 trillion won ($26 billion) by 2018 if the bill is translated into action without any change.

Second, the bill will touch off strong protests from the public. Ordinary citizens are asking why they are forced to pay more taxes to shore up the civil servants' pension fund. Especially, company workers are raising questions about the fairness in pension reform. Last year, the government and the governing party railroaded a drastic reform bill for the pension scheme for salaried workers and the self-employed, which called for a gradual 33 percent cut in pension benefits. Besides, subscribers to the workers' pension get much lower benefits than retired civil servants.

Third, the public servants' pension reform bill is expected to have negative implications on discussions about how to revamp pension schemes for soldiers and teachers at privately-run schools. The bill is feared to set a bad precedent. There are concerns that soldiers and teachers might take collective action to thwart any pension reform that will inevitably curtail benefits and increase pension premiums.

Pension reform should no longer be delayed because the nation has to deal with a soaring number of retirees amid a rapid growth in the ageing population. However, pension reform is one of the hardest issues to tackle. What's important is that the country must set up equitable and viable pension schemes for different groups of pensioners. We urge the government to include bolder measures before it presents the half-baked reform bill to the National Assembly in November.