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A fairer and feasible basic pension

Published: 11 Oct. 2013, 23:26

The government should pay all South Korean citizens aged 65 years and over 200,000 won ($187) per month for basic social security as it originally promised. First of all, such payments had been pledged devoutly by President Park Geun-hye during her presidential campaign. Many elderly citizens voted for her believing she would deliver cash certificates of 200,000 won. There are those who argue that unaffordable and unfeasible campaign pledges should be revised. But presidential campaign promises should not be cast aside so easily. How hard has the president worked toward meeting her promise? How can leaders explain numerous changes and revisions in campaign promises beginning even in the government transition stage?

Second, the foundation of the national pension scheme must be kept intact. The national pension fund must be as sustainable as the basic pension. The national pension program’s credibility would be undermined if its subscribers are disadvantaged in eligibility for the newly-created pension for senior citizens. How can state authorities argue for rate hikes to sustain the national pension scheme in the future? It does not make sense for the government to worry about the country’s rapid pace of aging and yet run pension policy with such shortsightedness.

Third, social costs and conflicts could worsen due to questions about fairness in the basic pension. It is generally true that those who have long contributed to the national pension scheme will have decent incomes. But there could be contradictory cases as well. A person who lives in an expensive apartment in a posh neighborhood in Seoul could be eligible for a monthly payment of 200,000 won if they do not have any assets in their own name. Someone who receives more than negligible returns from a defined national pension can still get a basic pension of more than the average if the period of contributions has not been long. Those who have contributed diligently for a lengthy period in small amounts based on a low-paying job, however, could be left out in the new basic pension scheme. People may be tempted to move and hide their assets in order to fit into the eligibility requirements of being in the bottom 70 percent income bracket. As long as there are questions of inequality in eligibility, the welfare plan cannot be stable.

Fourth, a universal pension can be better funded. The tax levy on South Koreans is equivalent to 19.9 percent of the country’s gross domestic product, below the 24.6 percent average of the Organization of Economic Cooperation and Development countries. We inevitably need to levy more than 60 trillion won a year to improve social welfare. To do so, the government will have to seek cooperation from the higher-income class.

Some would question why the state should pay rich people 200,000 won? But such logic cannot help solve the problems in our tax structure. The state will have less resistance in levying taxes according to income levels when it offers key social welfare programs equally to higher-income citizens. The government is worried that it won’t be able to run the basic pension scheme for long if it pays an equal amount to all elderly citizens. The cost would likely snowball. But the government merely talks of expenditure without considering the demand. The sustainability of public finance depends on a balance in expenditure and revenue. A tax hike is inevitable because the current low tax burden rate won’t be able to sustain the rapidly aging society.

The public tends to be suspicious of new or higher taxes because it does not know where the money goes. In order to ease resistance, the government could consider creating an object tax that would specifically be used to fund social welfare. Building a better welfare structure has become an inevitable goal for the country. The basic pension should be introduced in its original universal framework and society should start talking about new welfare-oriented tax.

*The author is cochair of My Welfare State.

By Oh Keon-ho