This generation needs to payBefore arguing on the need to hike the contribution rate for the state pension fund, let us examine the logic behind opposition to the move. The biggest reason cited is that the debate on a rate hike would only create trouble and ill will, as people are still upset at the government’s attempt to create monthly allowances for the elderly, which was then changed to a means-adjusted system that would hurt many long-term contributors to the state pension plan. In addition, those opposed say workers won’t agree to extra deductions being taken from their paychecks amid the economic slowdown.
Some experts also suggest that a hike in insurance premiums is not that urgent, saying there are fiscal means to make up for shortfalls to the pension fund - either through additional tax revenues or budgetary spending years when the fund comes up short and does not have enough to make its payouts. But this idea is unfeasible considering that pensions in many advanced countries are in severe crisis and are failing to meet their obligations to pay retirees after shifting to a pay-as-you-go benefit system, along with an aging population and low economic growth. Some agree that pension contributions will have to be increased but argue it shouldn’t be right now. They suggest hikes should come when the fund slips into the red.
But such arguments amount to poor planning. According to a recent estimate by the National Pension Service, obligations will exceed contributions by 2043, causing the fund to incur a deficit. By 2060, the retirement pot would be empty. Between 2044 and 2066, more than 150 trillion won ($140.9 billion) would have to be paid out to retirees each year. After 2060, more than 200 trillion won would be needed for annual payouts. In order for the state to meet its obligations to contributors after 2060, it would have to increase the future premium rates by 13 percentage points to 22 percent from the current 9 percent. This is the worst possible scenario, to postpone a rate hike until the year the funds run out of money and then meet all the payment obligations only by a premium hike. However, this scenario does show up the numbers we are talking about, letting us know how much we need to keep the current national pension as it is. The only question is whether that liability will come from taxpayers or from a sudden rise in rates.
A rate increase is imperative to ensure benefits are paid fairly. Baby boomers will get refunds of 60 percent to 70 percent of their average income from their working years, after their contributions to the state pension plan started at 3 percent. The 7.6 million people currently saving 9 percent from their monthly pay will soon be retiring from the workforce. If the hike is deferred, they will enjoy relatively generous retirement benefits from a low investment. The future generation, however, will have to pay more than 15 percent of their pay in order to get just 40 percent of their average pay after retirement. Japan is the lesson here. Back in the 1980s, nearly 90 percent of people participated in the national pension scheme. But now that number has plunged to below 60 percent. Among young adults, just 35 percent are now participating, underscoring their resentment and distrust of the pension scheme.
The future generation faces a growing burden from public health insurance and the cost of caring for the elderly as our overall population ages. The future generation faces an economy growing at less than 1 percent a year and non-working senior citizens growing to make up as much as 40 percent of the population. What right do we have to demand the future generation face a 13 percentage point rise in their pension payments because we don’t want to face a 4 percentage point rise today? The only decent thing now is for people to do their part in sustaining the pension system before requesting the future generation contribute more.
Authorities should stop fretting and start persuading the public why we should start preparing for the future.
Translation by the Korea JoongAng Daily staff.
*The author is the head of the pension research center of the Korea Institute for Health and Social Affairs.
By Yun Seok-myung