Consensus is keyThe government has drafted an outline to reform the national pension system. It proposes a plan to raise premiums and the age at which people stop contributing from the current 60. The overhaul is meant to help sustain the fund as Korea’s population ages as a result of a low birth rate and longer life expectancy. The national pension system is expected to run out of money three to four years earlier than the previously estimated 2060 unless changes are made.
A committee in charge of the reforms proposed to gradually raise the premium rate, which currently deducts 9 percent of monthly paychecks, to 13 percent from 2028 or 2033. The increase could become bigger if the payout ratio against lifetime income is compromised to stay at the current 45 percent instead of being cut to 40 percent. The age at which people stop making payments is proposed to go up to 65 from 60 in line with longer life expectancies and higher retirement ages.
The need to reform the pension system was raised long ago. To sustain the system, contemporaries must pay more and receive less. Lowering the pension payout is difficult as the sum is already paltry against today’s cost of living. The only option left is to increase payments in. But a reform of the national pension system is not easy, as it can trigger generational conflict.
The hike in premiums would not just burden employers and salaried workers, but also self-employed people and retirees. The extra burden would likely aggravate hardships for shopkeepers and small merchants. Those lacking employer subsidies could withdraw from the system altogether, which obviously would not help sustain the fund. Retirees also would have to squeeze out their monthly contribution if their pension age goes up while most companies do not keep their employees beyond 60. The younger generation would be equally unhappy. Before implementing changes to the pension system, society needs to reach consensus on various factors, including the unemployment problem among the young generations.
The outline needs to be reviewed by the Ministry of Health and Welfare and reported to the president before being put up for legislative approval. Politicians are unlikely to easily agree on a pension reform that could lose votes. Politicians must look beyond the electoral impact.