Glass half full in basic pension plan

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Glass half full in basic pension plan

There was bad news and good news for seniors in a pension plan announced by the Ministry of Health and Welfare yesterday. Starting next July, the government could begin paying a monthly pension of as much as 200,000 won ($185) to people age 65 and over who meet an income test. The bad news, at least for the Blue House, is that the announcement represents a considerable retreat from President Park Geun-hye’s campaign promise last year to make a basic pension universal.

The cutoff for receiving pension payments, the ministry said, will be an income below the 70th percentile of senior citizens’ incomes. Currently, income of 830,000 won per month for a single person or 1.33 million won for a couple marks the boundary between the top 30 percent of elderly income earners and those eligible for at least a partial pension.

The ministry’s revised plan would make people at or below the 63rd percentile in income eligible for the full 200,000 won monthly payment. Korean senior citizens in that category number about 3.5 million, the ministry estimated, or about 90 percent of all those eligible for a pension. About 2 million are in the top 30 percent of senior income earners, the ministry said yesterday.

The remainder, those in the 64th through 70th percentiles, would receive a pension of at least 100,000 won per month. The pensions would be calculated on the basis of whether and for how long the recipient has paid into the wage-based national pension system and thus how large a pension they can expect from that source. The ministry estimated that each additional year of job-related pensions would result in a lower monthly benefit of 10,000 won in the new scheme.

During last year’s presidential campaign, Park promised to provide everyone age 65 and older a 200,000 won basic pension per month regardless of income level, a campaign pledge that may have contributed to overwhelming support for Park from older voters in the Dec.19 election. At present, senior citizens in the lower 70 percent by income receive a basic pension of 97,000 won per month.

The difference between that promise and yesterday’s announcement reflects the government’s growing worry about the government’s financial position and its ability to meet rising demands for a more inclusive social welfare cushion. Demographics also caused some concerns; a fast-aging Korean society, whose gray-haired population will increase from 5.45 million in 2010 to about 16.5 million by 2040, will be a drain on even the pared-back scheme proposed by the ministry yesterday.

Estimates say the basic pension plan as it currently stands would cost 39.6 trillion won from 2014 to 2017. The administration has pledged to fund the new program out of general tax receipts, not from the national pension fund that covers retired workers.

The ministry will formally present its plan to Park today at a cabinet meeting, although a final decision on the matter is probably still some time away. She is expected to speak publicly on the plan quickly to counter expected criticism that she has already broken a campaign promise.

Indeed, that criticism has already begun. Kim Han-gill, chairman of the Democratic Party, attacked her by saying the pension scheme will polarize the nation. He said she had “flip-flopped on her promise to support seniors.”

Yoon Sang-hyun, deputy floor leader of the Saenuri Party, rebutted the DP’s criticism yesterday, saying that the new plan was a bow to fiscal reality and was devised to make the basic pension program sustainable in the future. Park’s pledge, he said, has not been discarded but changed only enough to make it workable.

The statistics on poverty among Korea’s elderly people have stung its political leaders. Studies have shown that half of the nation’s senior citizens live on incomes of less than half the national per capita average. A 2008 study by the Organization for Economic Cooperation and Development put the rate in Korea at 45.1 percent; the OECD average was only 13.5 percent.

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