[EDITORIALS]Saving the pension fund

The Korea Development Institute recently released an analysis that the National Pension Fund will be exhausted by 2041 should it be left to operate according to today’s standards. The state-run think tank’s predicted time is six years earlier than the government’s. A one-percent drop in the fund’s operating profit rate equals a 160 trillion won ($152 trillion) loss in returns and with interest rates falling, reforms are urgent, the institute said.
Due to the high-payout, low-premium design, expenditures will exceed income beginning in 2036. Alternatives include increasing taxes, which will add to the burden of our descendants, or giving up on the pension fund altogether. Considering the falling birth rate and the lack of adequate social welfare systems, both must be avoided.
The pension fund must ensure profitability and people must pay reasonable premiums for rational payouts. A reform bill is pending that would lower the guaranteed percentage of average income before retirement in annuities, from 60 percent to 50 percent and raise premiums in 2010. But the Assembly has been slow to act, fearing a voter backlash. With the number of people eligible for pension funds increasing every day, it will become increasingly difficult to fix the problem and losses will grow if pension reforms are delayed. If politicians can’t come up with an alternative to the current idea, they should not, like cowards, hide from the problem but pass the bill.
Improving the fund’s asset investment profitability without damaging its stability is another urgent task. Some 90 percent of total operation funds are currently invested in low-risk bonds. While operational funds are projected to exceed 600 trillion, maybe even 1,000 trillion won, in the near future, the size of the market for low-risk domestic government and local bonds is a mere 142 trillion won. The market is already deranged from the National Pension Fund’s near-monopoly and if future investments are made in similar fashion, there will be nowhere to invest the pension fund. Depositing the fund in banks is also not viable as real interest rates are recording minus levels. Bond-yield levels have also dropped from annual profits of 12 percent ten years ago to 7.8 percent last year. A rational alternative must be found.
The fund is the future of the people and cannot fail due to irresponsibility and unreasonable objections.