Last chance for pension reform

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Last chance for pension reform

The Korea Pension Association unveiled recommendations to reform the money-losing government employees’ pension scheme. The proposal increased the premiums for both active and retired civil servants. The presidential office, government and ruling Saenuri Party agreed to redesign government employees’ pension program within the year. “We may make enemies of all government employees, but we must go ahead (with the reform),” said Kim Moo-sung, head of the Saenuri Party.

The government employees’ pension scheme remained intact despite criticism over its generous features compared with the separate national pension program for all the rest of us, due to opposition from government employees and lack of willpower from the government. The pension scheme requires a subsidy of 2 trillion won ($1.91 billion) a year from tax coffers to cover for its losses. The amount is expected to reach 7 trillion won in 2020. Outstanding debt totals 484 trillion won because the program is structured on coverage payouts larger than the rates paid throughout government service. The broad national pension pays 870,000 won monthly for subscribers of more than 20 years, and 330,000 won on average. Government employees get 2.19 million won a month from their separate pension scheme.

Under the proposal, premiums will be raised to 42.9 percent by 2026. Pension payouts will be cut by 34.2 percent. Payment age will be revised to 65 years old, the same as the national pension scheme, from 2033. Pensioners will be taxed at 3 percent. The ultimate goal is to equalize the terms of the government employee pension and the national pension program so that the two can be unified by 2055. The reform plan also proposed that government employees get the same severance compensation as corporate employees. The minimum subscription for the pension plan will be reduced to 10 years from the current 20.

Taxing must, however, be differentiated. A maximum rate should be levied on those eligible for lofty sums and a lower rate on those receiving smaller sums. This is the last chance for reform in government employee pension because the political agenda will be dominated by the 2016 election from next year. Our poll showed that 61 percent of the population wants reform in the government employee pension plan. Government employees should stop digging into the pockets of taxpayers to sustain their pensions.

JoongAng Ilbo, Sept. 20, Page 30

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