ED Urgent pension reform

Determination is needed to stop exploiting future generations

Ahn Cheol-soo, the head of the presidential transition team, announced a plan recently to establish a public pension reform committee to discuss the pension system as a whole and push for its structural reform. The team will stop at reaffirming the Yoon Suk-yeol administration's intention to push for pension reform, while a proposed committee will make decisions on the detailed programs, such as premiums and income replacement rates.

In 2055, those born in 1990 will reach 65, the age when they can begin to claim their pension benefits, but the pension fund will have dried up. The generational commitment, the basic principle of the pension system, will be broken and be reduced to a scheme where the current generation exploits future generations. As the Moon Jae-in administration has sat on its hands, the premium rate to be borne by employees in 2050 will rise from 20.8 percent to 25.5 percent, a quarter of their incomes.

Other pensions are also in a serious situation. Government employee pensions and veterans' pensions, which began to incur deficits in 2001 and 1973, respectively, plugged their holes last year with 3.2 trillion won and 1.6 trillion won of taxpayers' money. To stop public funds from pouring into the bottomless pit, these pensions should be integrated with the national pension system to attain equity.

The basic pension increase, another presidential campaign pledge, makes things more difficult. The transition team has vowed to raise gradually the basic monthly pension paid to 70 percent of adults 65 and older from 300,000 won ($238) to 400,000 won. Suppose that the government pays basic pensions according to the new standard. In that case, it will need 49 trillion won in 2030 and 160 trillion won in 2050. Such amounts are too big to shoulder unless restructuring is carried out in conjunction with other pensions.

Because of Korea having the fastest-aging population and lowest birthrate worldwide, the later the pension reform, the larger the burdens on future generations. “We cannot avoid pension reform. It is not an option but an obligation,” President-elect Yoon Suk-yeol said. “I will do it in the early days of my administration.” However, it will not be easy to succeed unless he begins with extraordinary determination before this year passes.