[Outlook]Pension puzzle

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[Outlook]Pension puzzle

Public administration textbooks state that two types of equality should be considered when drawing up a government policy. The first is vertical equality, that is, being more considerate toward people in need. The second is horizontal equality: treating people who are at the same social level equally. Both standards are important, but generally people get more upset when horizontal equality is not met than when vertical equality falls by the wayside.

With the recent release of the revised public employee pension scheme, most media outlets ran negative views and most people were unsatisfied. That was because they thought horizontal equality had not been achieved between the public employee pension program and the national pension program for ordinary citizens.

Many think the already meager benefits of the national pension scheme were drastically cut due to fears of a financial crisis in the pension fund in a few decades.

Meanwhile, payouts for public employees were reduced only slightly as a gesture, even though the pension program for civil workers is already in trouble financially, and benefits are much more generous.

It is reasonable to argue that the public employee pension program should be balanced with the national pension scheme. But was the recent revision really unfair to the national pension program?

Media outlets immediately answered, “Yes, very much so.”

But neither the question nor the answer can be that simple and clear-cut. Benefits from the two pension programs can be compared to see if they balance out. When comparing payouts under the current national pension and those under the revised public employee program, however, it is not reasonable to consider only what percentage of income will be delivered as benefits under the changed system.

To correctly gauge horizontal equality between the two programs, not only pension benefits but also overall rewards - including income and severance pay - must be compared.

Although public employees receive more pension benefits, their severance pay and income are much lower than what workers in the private sector usually receive. Typically, a person who has worked for a private company for 30 years would receive 150 million won ($114,000) in severance pay.

A public employee who has served for the same amount of time only gets around 60 million won when he retires. Last year, incomes of public employees only amounted to 90 percent of what private company workers were earning.

The national pension program plays the role of redistributing income, unlike the public employee scheme. Many retirees from private companies receive less-than-average payouts, 30 percent of income when a person has made contributions for 30 years.

This should be taken into account when comparing the two programs. For instance, if a private company employee whose income is the same as that of a public employee and has made contributions for 30 years, he will receive less than 25 percent of his income in pension payouts.

Apart from the above, the difference in limitations on maximum income, the difference in ages at which subscribers start to receive benefits, the time it takes for the revised scheme to go into effect and the increase in life expectancy should be taken into consideration as well.

So, after looking into all these factors what do we find?

If we consider only the first and second reasons and make rough calculations, it looks like the two pension programs are more or less at the same level.

But if other factors, such as the difference in the ages when benefits start to kick in and the fact that people are now living longer than ever, the public employee pension scheme certainly seems much more generous.

Another important aspect of creating a government policy is publicizing it. Unless it is classified information, a government policy’s content and presumed effects should be made known to the public.

The materials that the Ministry of Public Administration and Security released about the public employee pension modifications revealed mostly advantageous points of the public employee pension.

It is natural that people think it’s better than the national pension program. Media outlets’ evaluations focused most of their attention on such problems with the revision.

Whether through public hearings or debates, the comparison between the revised public employee pension and the national pension should be conducted in the right way.

If it is revealed that the public employee program is more generous than the national one, it will be necessary to modify it once again. Most public employees will accept the situation, if it is the result of a fair process of comparisons.

Likewise, if the high payouts of the public employee pension program turn out to be legitimate rewards for their service, ordinary citizens won’t oppose supporting the fund with taxpayer money.

Employers should pay reasonable salaries and employees should receive fair rewards. Private companies and the government alike should abide by this rule.

*The writer is a professor of public administration at Korea University. Translation by the JoongAng Daily staff.

by Kim Tae-il
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