A system from the pastA National Assembly-sponsored body discussing ways to upgrade public pensions and solve poverty among the elderly was launched. The body was the offspring of a legislative agreement to reform the public employees’ pension scheme in May. It will discuss whether to raise the pension coverage ratio to 50 percent of average income from the current 40 percent and how to better appropriate benefits to the less privileged population. In the second meeting on Sept. 23, a proposal to raise the national pension fund income ceiling was submitted. If the ceiling goes higher, post-retirement returns could become more realistic.
The income ceiling of the national pension program is set at 4.21 million won ($3,520). Even if a person earns 10 million won a month, his or her income is registered as 4.21 million won and 9 percent of it goes into monthly contributions, half from the employees’ pay and half covered by the employer.
The ceiling is unrealistically low considering the average monthly salary per worker in a workplace of more than five employees is 3.31 million won. The ceiling fell behind the times because it was fixed at 3.6 million won for 15 years until 2010 in fear of protests against rises in premiums. The subscribers paying premiums from the top income level reached 2.35 million, surging 15 times from 1995 when the national pension scheme
was last revised. That is 14.3 percent of total
When the ceiling is low, pension reserves cannot increase because overall average incomes remain subdued. If incomes increase, premiums should go up so that subscribers can enjoy bigger payouts in old age.
That mechanism has not worked for 15 years. As result, pension payouts are paltry and offer hardly any comfort in old age. Even if a subscriber pays up to the premium limit for 25 years, he or she will get just 820,000 won a month. A Korean needs 1.6 million won for minimum living cost in old age and 2.25 million won on average. The income ceiling for the government employees’ pension program is 8.4 million won. That is why retired government employees are more comfortable in old age.
Less than half of the population is prepared for old age. They have no other means of monthly income than national pension. If the coverage ratio is raised to 50 percent, the premium rate must go up to 16 percent of income from the current 9 percent. Such a hike would be too burdensome for ordinary salary-earners. Any adjustment must try not to advance the fund depletion, estimated for 2060, so that the future generation won’t be hurt by the change.
JoongAng Ilbo, Sept. 26, Page 26