An uncomfortable truth
The author is the politics editor of the JoongAng Ilbo.
The Moon Jae-in administration has often gotten in trouble by picking the wrong battles and going too far. They there are its failures of omission. One of its biggest failings was neglecting reform of the national pension system.
When asked how he could raise monthly pension payouts to 50 percent of basic salaries from the current 40 percent by his centrist rival Yoo Seung-min during a TV debate among presidential candidates in April 2017, Moon said that as long as the system was designed well, funding was possible without hiking the premiums on national pensions. He sounded as if he had a magical solution to raising the payout without having to raise the premium. But how would that be possible in a fast aging society with one of the lowest birthrates in the world?
Whether Moon really believed that was possible or he merely made an impossible election promise cannot be known. But the campaign pledge remains in the air.
Moon rejected all three options to reform the national pension system proposed by the health and welfare ministry in November 2018. He turned them down, claiming that they did not meet the expectations of the people. All three ideas proposed by the ministry called for higher premium rates. Yet he did not condone lesser payouts in return for a freeze in the premium. Welfare policy designers were in dilemma. Even Kim Yeon-myung, a pension expert who was the presidential secretary for social affairs, admitted at a National Assembly hearing that the president’s campaign pledge “in theory lacks persuasiveness.”
In December that year, the health ministry eventually included the option of “maintaining the status quo” of the pension system. In the face of Moon’s ambiguous — and indecisive — position on reforms, reform plans could not pass the National Assembly.
The new four-year term Assembly launched last year has not made any progress in reform discussions. Since the legislature is dominated by the ruling party with 180 of the 300 seats, a reform bill can pass if the Democratic Party (DP) is determined to pass it, as seen in the case of fast-tracking the act on establishing a new law enforcement agency to investigate corruption of high-ranking government officials.
But Moon appears to have lost any will or interest in reforming the pension system. Since there is no way to bump up the payout without raising the premium, he may have decided to kick the can down the road to the next administration. The DP also would not want to risk dealing with a controversial and explosive reform plan with the presidential election coming up next March.
The national pension’s troubles have snowballed amid dilly-dallying by the government. According to the National Assembly Budget Office in July 2020, the pension system was expected to fall into a deficit in 2040 and entirely run out in 2054. Its forecast on the fund running out of money is two to three years faster than the government’s 2018 estimate of a deficit starting in 2042 and a fund depletion by 2054 as low birth rate and aging problem has become even graver.
The Budget Office’s projection was based on the 2019 consensus. When reflecting the birthrate of 0.84 in 2020, the lowest in the world, the fund’s depletion could arrive faster. At this rate, people aged 50 or lower won’t be able to get any pension in their old age even after dutifully paying their premiums. Taxes would have to be collected to cover the payments. But the contemporary won’t easily go along with spike in taxes. Without a radical action, catastrophe is unavoidable.
President Moon should have apologized for failing to keep his campaign promise and sought opposition cooperation for bipartisan approval for a reform outline. The government’s popularity could have taken a hit, but the move was necessary for the future of the nation. The conservative Park Geun-hye administration received a heavy blow for trying to reform the civil servants pension, which is marginal compared with the national pension. The next government may have to stake its fate on national pension reform.
Voters must closely study presidential aspirants’ campaign platforms on national pension reform. Their platforms will serve as a good guideline to judge the courage and honesty of the candidates. A candidate who candidly admits the need for higher rates or lower payouts and can demand pain-sharing from the people can save the country’s future. A bitter pill may be difficult to swallow but necessary for a cure.