Redesign, don’t reform
The ruling Saenuri Party and the opposition New Politics Alliance for Democracy agreed to raise the income replacement rate of the national pension program - the percentage of working income an individual requires to maintain the same standard of living in retirement - from 40 percent to 50 percent. Not to speak of procedural loopholes, the rare consensus may lead to a serious level of generational war due to a mounting tax burden for the next generation.
Our political circles yielded to the labor’s demands in return for its minor compromise on the government-sponsored civil servant pension system. Powerful labor unions and civic groups - the Korean Confederation of Trade Unions, Federation of Korean Trade Unions and People’s Solidarity for Participatory Democracy - vehemently resisted the government-led reform drive aimed at reinforcing the sustainability of public pension programs. They claimed that a drastic reform of public pensions would only deepen employment instability for the young generation and make their lives even tougher in retirement. At the same time, however, they insisted on strengthening the national pension program, which has more than 20 million subscribers.
If the government lifts the income replacement rate of the national pension system, subscribers would have to pay 166.9 trillion won ($154.4 billion) more in taxes through 2083. All the additional cost would have to be covered by the young generation. Korea is the fastest aging society in the world. Now, it takes 5.56 workers to support one senior member of society, but it will take 2.7 workers to do that in 2030. The National Assembly’s Budget Office expects the national pension fund will be depleted by 2053, when current 27-year-old workers start receiving pensions at age 65. If the income replacement ratio is raised, the fund will be depleted much sooner, a colossal disaster for the young generation.
In Italy and Spain, which failed in their public pension and labor reforms, less than 20 percent of those in their 20s are employed. Italy spends 16.8 percent of its GDP on welfare programs for senior citizens, but many in the young generation are unemployed or have part-time jobs.
Inequality in an aging society can trigger generational conflict and wreak havoc on the economy. To avert this, the government must draw up plans for public pension systems with the young generation at the center. It is time to redesign the whole system.
JoongAng Ilbo, May 5, Page 26