Revised pension system gradually reduces payouts

The newly revised bill on the pension system for civil servants that passed early Friday contains a number of changes compared with the current plan, including a clause dealing with when a government worker files for divorce, to close the gap with the national pension system.

The overhauled civil servants’ pension system - while it will not completely resolve the deficit - is anticipated to decrease the loss in taxpayer money from the current 10 billion won ($9 million) per day to 5.9 billion won daily next year.

The new system will incrementally raise civil servants’ contributions starting next year. Contributions currently stand at 7 percent of a worker’s wages and will increase to 9 percent by 2020, according to the Ministry of Personnel Management.

Likewise, the percentage of monthly payouts given to the current group of civil servants when they retire will gradually reduce, from 1.9 percent to 1.7 percent of a worker’s average monthly income by 2035.

Over the next 70 years, the new system is expected to save the government some 333 trillion won. If the current system is maintained, costs accrued would total 1,987 trillion won between 2016 and 2085, while the new system amounts to 1,654 trillion won.

The minimum age to receive payouts was 60 for those who became civil servants before 2009, and 65 for those who joined rank after 2010. The age limit will also gradually be raised to 65 for everyone by 2033.

The bar will be raised to 61 for all retired civil servants by 2022, and 62 by 2024.

While the reforms were designed to respond to criticism over the disparity in benefits between retired bureaucrats and those under the national pension plan, civil servants have long protested the cuts in payouts.

Reforms to the pension system for government workers, widely considered unfair to private-sector workers, were discussed for a year and over several rounds of proposals.

Estimating that the average civil servant works for about 30 years, a civil servant 20 years into his or her career will see the least amount shaved from their pensions, while those 10 years into the job will see the greatest amount shaved off.

A Level 7 civil servant working since 1996, who is set to retire in a decade and receives a monthly payment of 2.43 million won, for example, will receive 2.32 million won, a 5 percent decrease, through the revision.

In contrast, a Level 7 civil servant working since 2006 and set to retire in 20 years will see a payout of 2.03 million won under the current plan, cut by 13 percent to 1.77 million won in the revision.

Also departing from the previous system, divorced civil servants will be required to pay to their spouse 50 percent of the pension gained during the period they were married if they were wed for over five years. For someone enrolled in the National Pension Service for an average of 33 years, the national pension income replacement ratio is 33 percent, compared to 62.7 percent for a civil servant.

In the future, the civil servant rate will drop to 56.1 percent but will remain higher than the private sector.

BY SARAH KIM, PARK HYUN-YOUNG [kim.sarah@joongang.co.kr]