[Viewpoint] We’re not out of the woods yet

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[Viewpoint] We’re not out of the woods yet

As stock prices and exports began picking up recently contrary to earlier predictions, optimism is rising and the overall atmosphere is becoming a bit more animated.

Judging from the mood, you’d think the economic slump is over.

But the number of people who are unemployed and those that ? discouraged ? have completely given up looking for jobs has exceeded 1.1 million. That’s certainly not a positive sign.

And the situation could become even more serious, particularly if public companies follow through with their announced plans to restructure and cut positions.

As the labor market shrinks, an increasing number of households are falling into the red, tapping credit lines or simply falling behind on their bills.

Household loans stand at 688 trillion won ($501 billion), the highest amount on record. If the economy keeps slipping, families will have to tap their savings for daily living expenses.

In the end, the money they spent years accumulating for retirement could dry up.

If that happens, elderly citizens will fall into poverty.

They most certainly will protest their plight, and you can bet that they’ll ask for an increase in pension payouts. They’ll vote for a presidential candidate who promises to do so, and that could influence the elections.

It’s not unheard of: A pension issue decided the result of the 15th presidential election, won by Kim Dae-jung.

Additionally, younger citizens who cannot afford potentially higher taxes levied to support elderly citizens might leave the country for greener pastures. That would tear the social security net beyond repair.

The government would then have to help people restrain themselves from spending their money on their children’s private tutoring and leisure activities to save more.

That is easier said than done.

The collapse of the real estate market clearly shows that investing in real estate is not a guaranteed retirement plan. To have a secure life after retirement, a pension ? one of the best inventions of humankind ? is the best option.

The national pension program and the severance pay system must be protected in order to ease the burden for younger generations who have to support senior citizens.

These days, as family income declines while spending rises, along with the price of everyday goods, many workers take at least part of their severance payments earlier to help fund their households.

Many break into their financial savings, reducing the amount of money they have left for retirement.

There must be a special measure to secure life after retirement.

First of all, workers should be barred from tapping into their severance pay before retirement. The severance pay system is the best way to help workers have enough money after they quit working.

Employers also are encouraging their employees to take their severance pay early in order to reduce the companies’ burden later.

This might put workers into poverty after they stop working. Taking severance pay before retirement was first allowed in 1997, when the labor conditions act was revised. It shouldn’t have been revised in that way.

The National Assembly must pass the bill for the revision of the law guaranteeing severance money for workers ? including the ban on taking severance money earlier ? as soon as possible.

A lawful severance system must be applied to irregular workers as well.

Drastic changes in the labor market have put irregular workers out of jobs. That is because the law stipulates that irregular workers must become regular workers after two years’ employment. Life after retirement for irregular workers is even more unstable than for regular workers.

Additionally, a measure stipulating that the government pay a certain amount in premiums for Individual Retirement Accounts for low-income earners or self-employed people must be introduced.

As regular workers save for life after retirement, they get various benefits such as income tax relief. Meanwhile, low-income earners and the self-employed either have incomes that are too low, or they do not report their incomes. So they hardly get any tax relief for pension savings. If the government pays subsidies for their pension fees, low-income earners will get some money after retirement.

If the economic slowdown continues, people’s lives after retirement will get even more difficult. We need to discover solutions that will make life after retirement less risky. Workers must be encouraged to save for pensions as well. That is the right way to handle the issue.

*The writer is a professor of economics at Konkuk University. Translation by the JoongAng Daily staff.

by Kim Won-shik
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