Political posturing gets in the way of real changes that hurt voters’ wallets.The core of the issue is that the pension system is structured to give more back in the future to pension policy holders than they pay in dues now.
The national pension system is like a time bomb waiting to explode. It is the government and the National Assembly’s job now to stop the timer ticking away.
The pension is one of a few welfare measures established in 1988 after the breakneck economic growth of Korea. However, it has also grown into something of a massive headache. The government and the assembly seem to at least be aware of the dire situation. President Roh Moo-hyun took time to mention the issue in his New Year’s address this year. Mr. Roh said, “It is clear that we should not leave the national pension system as it is, but everyone is laying it aside like it is somebody else’s business.”
So, what is the problem with the national pension system?
To summarize, the core of the issue is that the pension system is structured to give more back in the future to pension policyholders than they pay in dues now. Under the current system, pension holders in their old age will get 60 percent of their present income after retirement, but they are paying premiums of only 9 percent of their wages. Under this “pay less, take more” situation, it is expected that the National Pension Service’s finances will dry up by the year 2047.
What will happen then?
The government must still pay pensions to policyholders, and the money will have to come from taxes. In the “Answers to controversies” section of its Web site, the National Pension Service said it started with a low collection rate in order to “make the public feel more comfortable in accepting the concept of a national pension.”
In that case, it should be simple common sense to raise the monthly dues, which are currently 9 percent of the reported income of a policyholder. However, the highest priority of politicians now is the presidential election and general elections for the National Assembly in 2008, both approaching fast, for which they will be campaigning next year. They don’t want to displease pension policyholders, their potential voters, by taking more money from their monthly incomes by the commonsense step of raising the pension dues.
Another issue is the complaints of wage earners over what they perceive as disparity with independent business owners. While wage earners’ incomes are automatically reported to the government, those who run their own businesses can report less income.
Some people have also complained that independent business owners report a higher income to the National Pension Service so they will get a higher pension in later years, while reporting less income to the health insurance system, from which they will not get any return.
On top of this anxiety about the exhaustion of national pension funds and the disparity between wage earners and independent business owners, there has also been concern that the National Pension Service has failed to effectively manage its funds.
The national pension system is thus in for a rough ride. In January, Mr. Roh nominated governing Uri Party legislator Rhyu Simin as Health and Welfare Minister, despite fierce opposition from the governing and opposition parties; one criticism was Mr. Rhyu’s edgy personality and biting tongue. Mr. Roh, however, confirmed Mr. Rhyu, who has strongly voiced the need to reform the national pension system.
Mr. Rhyu presented a reform bill on the national pension to the national assembly in 2004, but it failed to pass due to parliamentary conflict over the issue.
On taking up his ministerial post in February, Mr. Rhyu said, “I will settle the national pension issue within this year.” He added, “I desperately beg the politicians of Korea to look to the future, not the present,” in dealing with the issue.
Mr. Rhyu may not be so lucky, as the assemblymen are not likely to quickly forget their differences.
Last week, however, the governing Uri Party met with Mr. Rhyu and reached a long-awaited agreement on the national pension reform bill. The Uri legislators on the assembly’s health and welfare committee said last week that they hope their reform bill will be passed by the assembly by November of this year. They sounded hopeful, yet their rosy blueprint has many holes, pension experts say.
The core of the Uri reform bill is to cut the annual pension to retirees from the current 60 percent of their wages to 50 percent. However, the Uri plan left the premiums untouched at their current 9 percent. The government earlier had called for an increase in premiums to 15.9 percent, which would delay the moment when the funds are expected to run out ― from 2047 to 2070. Pension experts have called for even higher premiums, up to 20 percent, to stabilize the finances of the national pension. Yet the Uri plan would prop up the system for an additional five years only. This is why pension experts are critical of the plan, saying the Uri Party chose to lower its risks in the reform, bearing the approaching elections in mind.
Another problem with the Uri bill has to do with the plan to broaden the number of elderly poor who would receive pensions, taking care of about 60 percent of the needy elderly. Under the bill, the elderly poor would be entitled to receive about 70,000 won ($74) to 100,000 won a month, although they have not paid premiums into the national pension system.
Instead, those who belong to the upper 40 percent of the income hierarchy would take lower annual pensions when they retire. For example, under the current system, if a person is earning 2 million won a month now and pays premiums for 25 years, he or she would receive 660,000 won per month in pension when he or she retired. If the Uri bill is enacted into law, that same person would only receive 624,140 won per month, just over 35,000 won lower than under the current system.
The Uri Party called the pension for the needy elderly a “basic pension,” co-opting a call by the leading opposition Grand National Party for “basic pensions” for the elderly needy. The leading opposition party has proposed to cut the annual pension for retirees from the current 60 percent down to 20 percent, while taking premiums of 7 percent, less than the current 9 percent.
The Uri Party, which does not hold a parliamentary majority, is hoping for cooperation from the Grand Nationals to pass the bill in the assembly. However, the Grand Nationals are giving Uri the cold shoulder, having issued a statement that read, “The governing party’s bill makes no progress on the current system.”
Kim Yong-ha, a professor at Soonchunhyang University, said, “I cannot help but have doubts on the Uri bill, in that it targets the elections in 2008, as they are giving more benefits to the elderly while leaving the premiums for the benefit of the younger generations.”
While the politicians and the government leave us bewildered about the time bomb of the national pension, time is ticking away.
by Chun Su-jin, Cheong Chul-gun