Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Pension reform proposal sparks public outcry
Activists from labor unions and civic groups protest against a report released by a national advisory committee on pension reform, during a public hearing on the proposed changes at COEX in southern Seoul, Friday. Yonhap
By Yi Whan-woo
Under new plan, people will pay more but get pension at older age
By Yi Whan-woo
A national advisory committee on pension reform drew criticism, Friday, after proposing a hike in the pension premium rate, while delaying the age retirees receive payouts.
The committee, which operates under the wing of the National Pension Service (NPS), was also skewered for proposing that the amount of receivable pensions after retirement remains unchanged.
The proposals were part of a report unveiled during a public hearing, Friday, aimed at preventing a depletion of the state-run pension fund by 2055 in the face of a deepening demographic crisis.
In particular, the report addressed the government's commitment to ensure that the pension fund is not depleted until 2093 for first-year subscribers who turned 20 in 2023. They will turn 90 in 2093, and many of them are anticipated to be alive as the life expectancy rises in Korea. The life expectancy was 83.5 as of 2022.
The Ministry of Health and Welfare, which oversees the NPS, will take the report into account before submitting a blueprint of pension reform to the National Assembly in October.
But experts cited serious flaws in the proposal.
“The report has a serious shortcoming considering that it fails to cope with the rate of average income replacement,” said Joo Eun-sun, a social welfare professor at Kyonggi University.
The rate decides the amount of receivable pensions after retirement. The committee suggested it will remain unchanged at the current 40 percent, meaning that retirees will receive 70 years later the equal amount of pension from 2023.
The committee, on the other hand, proposed the pension premium rate to be hiked to at least 15 percent, up from the current 9 percent, while recommending the starting age of pension payout to be raised to 68 from 65.
“Who would want to pay more in return for getting the same amount of pension at an older age?” Joo said, adding that such a scenario was touted as “possibly the least desired scenario among citizens.”
The disputed proposal also prompted at least one committee member from academia to quit in protest, according to sources familiar with the matter.
The committee consists of 15 members, with 12 of them from the private sector.
The committee explained it formulated a wide range of possibilities to optimize the operation of the pension fund.
For instance, the size of the fund in 2093 is anticipated to become 9.4 times larger than this year if the premium rate is hiked by 0.06 percentage point annually for 10 years beginning in 2025 and the starting age of pension receipt is delayed by one year for every five years beginning in 2033.
Under the scenario, the premium rate will reach 15 percent and starting age of pension receipt will rise to 68.
Also suggested by the committee was raising the premium rate to 18 percent and to increase the return rate of investment using the fund by a minimum 0.05 percentage point annually. The size of the fund accordingly is expected to grow 4.3 times larger in 2093 from this year.