Pensions of privilege

Who are the most enviable people in South Korea? Forget about the families who own the chaebol, who have worries galore. Think about the 350,000 retired civil servants who get 2.19 million won ($2,064) on average a month from a generous state pension scheme run exclusively for government employees. Their monthly income beats the average 1.43 million won that 5.94 million non-permanent workers earn a month. Those who retired from senior positions are more handsomely rewarded. They don’t have a care in the world!

People who are subscribed to the national pension program are refunded 310,000 won on average, and those who are subscribed for more than 20 years get 840,000 won. More than 5 million people are without pensions because they could not afford monthly fees. Government employees may complain that unlike corporate employees, they don’t have any severance pay and see a huge amount sliced out from their meager monthly payroll for double pensions throughout their career. But common folks who cannot afford to prepare for old age can only be jealous of the life of our retired public servants.

The cost of sustaining the Government Employees Pension Scheme is dear to both taxpayers and the government. The pension scheme has long been in deficit because of its generous system of awarding pensioners triple the amount they contributed during the terms of their civil service. Tax subsidies compensating for the deficit are close to 10 trillion won. During the five years of the previous administration of President Lee Myung-bak, 7.7 trillion won was spent to subsidize the payments to retirees. The incumbent government will have to spend 15 trillion won, and the next government 31.5 trillion.

Spending for welfare programs in next year’s budget has exceeded the 100 trillion won mark for the first time. The basic social security for the lowest-income bracket, excluding the health care subsidy, totals 4.4 trillion won. The new basic pension scheme for low-income people aged over 65 is estimated to cost 5.2 trillion won. But the budget laid out to fund the Government Employees Pension is 10.2 trillion won. It’s no wonder few people are impressed or convinced by the president’s repeated promises of better welfare for the general public. We don’t hear any suggestions of revamping the money-hemorrhaging civil servant pension scheme.

Fixes of the pension program for civil servants have been attempted by several governments since it was introduced in 1960. But bureaucrats could hardly be relied on to chuck away the best part about being a public servant. During the administration of President Kim Dae-jung, civil servants in 2001 instead squeezed in a state payment guarantee clause in the law to ensure they get their lot from tax funds if the pension system runs out of money. Bureaucrats of the Lee administration were equally audacious. They included government employee union representatives in the second reform committee meeting to make a mess out of the reform draft that had been originally pretty good. At the end, the pension system kept the handsome returns for current employees more or less intact while sharply reducing payments to future employees.

In contrast, the National Pension System paid out to the general public underwent numerous alterations and trimmings. Through major redesigns in 1998 and 2007, the rate of returns against average income pensioners earned during their working years was reduced to 40 percent from the 70 percent that was offered at the beginning in 1988. The retirement age at which a person was eligible for benefits was also extended to 65 from 60. Moreover, while the national pension scheme that gets money from common salary-earners is structured to fund underprivileged and low-income people, the civil servant plan doesn’t have any other purpose other than to finance livings for retired government officials.

Governments around the world are trying to narrow the differences in public pensions and government employees’ pension schemes. The United States and Japan have integrated their two pension systems. Japan last year passed a law to merge its two separate pension plans. Tokyo pursued the reform after building a social consensus that government jobs are not exclusive enough to demand special benefits.

President Park Geun-hye must take her stand. Hyun Oh-seok, deputy prime minister for the economy, recently said the government next year will calculate the affordability and come up with a plan to redesign the pension scheme for public servants as it has done with the national pension plan.

But he is more or less saying that a fix won’t happen under the current administration. Brazilian President Luiz Inacio Lula da Silva, the country’s first working-class president, in his first year in 2003 targeted the generous retirement system for civil servants. The union called him a betrayer and went on a massive strike. In the end, however, he lowered his fiscal deficit and revived the economy.

Any reforms are best done in the early stages of a new government. Reforming civil servant pensions should be left to independent experts. The pension scheme should be redesigned by stripping away any privilege bestowed on public service. Korea earned its fame not because of its bureaucrats but thanks to global brands like Samsung and Hyundai. Pension systems should be changed to keep abreast of the times.

If they don’t want to turn themselves into public enemies, government officials should support reforms to buttress the president’s welfare promises. Their sacrifice would also help accelerate reforms throughout the public sector.

*The author is senior editorial writer of the JoongAng Ilbo.

By Lee Ha-kyung