Government suggests gradual premium hike in pension reform

Health and Welfare Minister Cho Kyoo-hong makes an annoucement on his ministry's proposal for pension reform during a press briefing at Government Complex Seoul, Friday. Yonhap

The government cited a need for a gradual hike in the premium rate for the state-run pension as it outlined a proposal for pension reform, Friday.

Announced by the Ministry of Health and Welfare, the proposal, however, is anticipated to prompt protest from older subscribers, because it focuses on implementing higher amount for those in the middle- and upper-age groups than the younger ones.

For instance, while the pace of hike in the premium rate will remain consistent for all age groups, such a hike may occur in five years to come from today for those their 40s to 50s, and in 10 years for those in their 20s and 30s.

The ministry’s reform proposal came as the government is responsible for outlining a plan every five years since 2003 for future operation of the fund managed by the National Pension Service (NPS).

The NPS runs under the wing of the ministry. This year marks the fifth revision of the NPS fund.

In a press briefing, Health and Welfare Minister Cho Kyoo-hong said the ministry’s proposal “will serve as a starting point for relevant parties to buckle down in discussing the pension reform.”

He was referring to a set of next procedures ― a review of each NPS fund operation committee and the Cabinet, plus approval of President Yoon Suk Yeol ― before the proposal can be submitted to the National Assembly by the end of October.

“We’ll work with the National Assembly to bring public attention concerning pension reform and craft the proposal in a detailed manner,” the minister said.

Experts, however, remained skeptical about the proposal, arguing that the conservative Yoon government rather intends to woo young, liberal voters ahead of the general elections in April 2024.

They also criticized the government for “remaining undecided over its policy direction on pension reform.”

They especially noted the proposal lacks specific details that the government finds ideal concerning pension premium rates, the starting age of the pension and amount of pension receivable after retirement.

A balanced, carefully crafted overhaul of those three factors is essential to sustain the state-run pension fund, in the face of a looming demographic crisis and heightening fears over depletion of the fund.

The fund is expected to be fully drained by 2055 if corresponding countermeasures are not taken.

Under the circumstances, the ministry said raising the premium rate is “inevitable” for sustainability of the fund while “it is still under review” concerning the amount of pension receivable.

Regarding a possible delay of the starting age for the pension from the current 63, it said relevant discussions will start “if conditions are met for stable employment of senior citizens.”

The ministry said it took into account recommendations from a national pension advisory committee made earlier this year.

It 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.

Concerning the rate for the amount of receivable pension after retirement, the committee suggested keeping it at the current 40 percent.