Complexities of pension payouts

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Complexities of pension payouts

The government has come up with a final plan to amend the national pension system. The aim is to bolster the post-retirement payout level to 1 million won ($881.5) per month.

Of the four proposals, three — excluding the one suggesting no change to current contribution levels — are designed to elevate the monthly payout to near 1 million won. The amount is close to the minimum living expenses — 950,000 won to 1.08 million won — for Koreans, although it is still below the median monthly costs of 1.37 million won to 1.54 million per retired household.

The government has come up with four proposals this time — compared with the two recommended by an outside group in August — after working hard. The greater number of choices suggests the government has tried to avoid controversy and accountability as much as possible.

The national pension fund has been warned that it will run out of reserves by 2057 due to our low birth rate and aging population. The future generations could see one fourth of their monthly salaries carved out to pay their pension premiums. The proposal to raise pension payout to 1 million won also includes the idea of raising the non-contributory basic pension to 400,000 won from current the 250,000 won. The basic pension, paid out to seniors with little or no income, already costs the state 11.5 trillion won each year. The increase in the payout would mean an extra fiscal burden of 5 trillion won to 6 trillion won a year from 2022 to 2026. The costs would be borne by current taxpayers.

The National Pension Act requires a re-examination of the balance every five years to ensure the integrity of public finances. The reform the government has come up with is entirely focused on increasing pension payouts without any regard to the overall balance.

It should have worked harder to present a better proposal to the legislature. Suggesting an increase in premiums, given the poor state of the economy, would not have been easy. Nevertheless, the government has the responsibility to be more farsighted. The tripartite committee, of government, labor and employers, may also come up with a proposal to guarantee a higher payout.

The National Assembly will have to make the final decision. It must establish a social body to reach a consensus on national pension reforms on its own before the decisions are swayed by the 2020 general elections.

JoongAng Sunday, Dec. 15-16, Page 34
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