Changes to pensions provoke a major outcry

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Changes to pensions provoke a major outcry

The government took a step back from major changes to the national pension system after harsh public backlash.

Health Minister Park Neung-hoo tried to calm mounting opposition to the changes on Sunday, saying that proposals reported by the press last week were only proposals.

On Monday, President Moon Jae-in stepped in, saying that there would be no changes made to the pension system without public consent.

“National pension reform will only be discussed under the principle of expanding post-retirement incomes,” Moon said at a meeting with his aides. “I find it hard to understand why such reports say the government plans to raise insurance rates when one of our administration’s principal welfare policies is to expand old-age incomes.”

Last Friday, sources in the Ministry of Health and Welfare told reporters that committees tasked with finding ways to keep the National Pension Service solvent in the future had proposed raising the age at which workers stop contributing a portion of their paychecks from 60 to 65 and the age at which benefits start to be paid from 62 to 68.

According to a Health Ministry report released Saturday, two separate plans were designed by the committees: one in which the current 45 percent income replacement ratio - the percentage of one’s working age income covered by welfare payouts - would be maintained but premiums raised from 9 percent to 10.8 percent next year, and another in which the income replacement ratio would be dropped to 40 percent and premiums raised to 13 percent by 2033.

In effect, these changes would mean workers would have to pay more over a longer period of time while receiving possibly smaller pensions at a later age. All citizens above 18 and below 60 are currently required to subscribe to the national pension system, and the age at which pensions begin is set to gradually increase one year every five years until it reaches a ceiling of 65 in 2033.

The public’s reaction to the proposals was explosive, with over a thousand petitions submitted to the Blue House’s website. Many have asked how they would be able to afford payments until the age of 65 when they are legally mandated to retire at the age of 60. Many Korean office workers are retired much earlier than 60.

The committees, which were launched last August, have the task of recalculating forecasts for the national pension fund every five years in accordance with predicted population changes. Staffed by both government and outside experts, they are supposed to make adjustment proposals to ensure the National Pension Service remains fiscally sustainable.

The Ministry of Health and Welfare is set to hold a public hearing this Friday to finalize the plans, which then must get presidential approval before undergoing legal ratification by the National Assembly in October.

The inevitable depletion of the national pension fund, which some experts say could happen as early as 2055, makes reforms necessary.

As the fastest aging advanced economy in the world, Korea’s fertility rate hit a historic low of 1.05 children per woman last year, and its population’s median age is predicted to reach 60 by the year 2045. With fewer paying into the system and payouts to the elderly soar, the pension system is deeply challenged.

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