Revamping the pension systemFinancial consultants commonly advise you to keep your national pension for a late age. Unemployed people and homemakers are also joining the pension system. The number of people in the system had grown from the 4.43 million who began the national pension scheme in 1988 to 20.05 million. It has become the biggest source of retirement funds for Koreans. The universal plan, however, has potential dangers to the country’s future and could rock the foundation of the social security network.
The current national pension scheme bears two major structural problems. First, it cannot be sustained for long without modifications in the payment rates and benefit returns. Under an accounting estimate in 2008, funds will completely dry up by 2060. Some believe that estimate to be too conservative. The National Assembly Budget Office predicts the pension scheme will run out of money by 2053. Park Yoo-sung, a professor at Korea University, sets the threshold at 2049.
Second, the current benefits can scarcely guarantee post-retirement security. The monthly return accounts for only about 40 percent of the average income someone made before retirement, and that is if the subscriber pays to the maximum. About 2.85 million people on the program receive an average of 470,000 won ($425) a month. Those who paid in for more than 20 years get 820,000 won a month, a far cry from the minimum 1.85 million won need to live in old age, according to a survey by the Korea Institute for Health and Social Affairs. Moreover, of people aged between 18 and 59, the ratio that will rely entirely on the national pension - without any other investments or income - is 25 percent.
If the problems are not fixed, the pension could run out of money and create major social disruptions. Any delays in reforms could deepen the hole and probably reduce the chance of maintaining public consensus and support for changes to the plan. The debate on how to fix the national pension system should start immediately. It should be initiated by our presidential candidates as the introductory chapter to their welfare programs.
The reforms should first address the two structural problems to sustain the program and guarantee a better level of late-life security. That will undoubtedly mean higher payments into the system. Jun Kwang-woo, chairman of the National Pension Service, said in a report to the National Assembly that the current rate of payments - 9 percent deducted from monthly paychecks - is the lowest level among members of the Organization of Economic Cooperation and Development. He said payment rates inevitably will have to rise to prevent the fund from going bankrupt. Talk of a rate hike could be politically risky. But politicians and the government should not defer the problem to future generations and must start redressing the problems today. That’s what we elect them for.