The upcoming pension crisis
The author is an economic and industry news director.
A comet heading toward Earth is a favorite subject for disaster movies. Popular Netflix movie “Don’t Look Up” is no exception. After a comet approaching the planet is discovered, the clock ticks down for all organisms on Earth to perish. There is only 6 months and 14 days left but no hero comes forward to save the planet.
With a re-election around the corner, the president is fixated on political gains from the crisis. The press and the public also brush off the threat. A broadcaster even announces the results of a poll that 20 percent of people don’t believe the existence of the comet.
The film, which borrowed the format of comet collision, effectively satirizes a divided American society. Scarier than an approaching comet is a missed golden opportunity after dismissing a looming crisis.
A comet is approaching Korea, too. An analysis of data from the National Pension Service (NPS) by the Korea Economic Research Institute shows that subscribers starting with those born in 1990 cannot receive national pensions under the current system. The analysis shows that fiscal balance of the national pension will turn to deficit from 2039 and its reserve fund will be depleted by 2055. If the government wants to maintain the national pension system, it must raise premiums. In a nutshell, a pension structure based on payouts larger than premiums cannot be sustained.
If low birthrate and fast aging continues, the national pension fund will be emptied sooner rather than later. Recent data from Statistics Korea shows that the number of newborns in November last year was fewer than 20,000. From January to November 2021, 244,016 babies were born, a 3.4 percent decrease on year. If this trend continues, the number of newborns will fall to the 260,000 range in 2022 from the 270,000 range in 2020. It is not easy to lift our birthrate swiftly in the face of the Covid-19 pandemic, high unemployment rate and soaring real estate prices.
Moreover, pension reform always faces strong resistance. The conservative Park Geun-hye administration bravely tackled the issue starting with the Government Employees Pension Service (GEPS). As a result, civil servants have been paying 18 percent of their basic salary each month — four percent higher than before — since 2016. Even that level of increase had to undergo strong resistance despite the need for a higher-rate increase at the time. To make matters worse, the number of government employees increased by more than 110,000 during the past four years under the Moon Jae-in administration — specifically, from May 2017 through June 2021. Different from the NPS, a deficit in the GEPS should be covered with people’s tax money. The pension for government employees has been in the red since 1993. As the number of recipients of that pension grows, the size of its deficit will continue to grow.
Reforming the national pension is certainly a tougher challenge. The Moon administration was not willing to discuss it from the beginning. After criticisms arose over a plan by a national pension reform committee to escalate the premium rate in 2018 — the second year of the liberal administration — the Blue House ordered a review of the plan. Since then, a special committee on pension reform under the Economic and Social Development Commission led by President Moon proposed thee plans, but they could not even be discussed because of the opposition’s demand for a unified proposal.
Though the ruling Democratic Party (DP) took a landslide victory in the April 15 parliamentary elections in 2020, the government gave up submitting a unified bill in June. At the time, Health Minister Park Neung-hoo expressed hope for the issue of pension reform becoming a major election issue. But that hope went nowhere.
With less than 40 days left before the March 9 presidential election, major candidates are refraining from talking about pension reforms. Instead, populist pledges are dominating their campaigns. Their sugarcoated promises will turn into enormous financial burdens for the young generation
If the government really cares for the young generation, it must put pension reforms into action. If a complete reform is difficult, the government must at least delay the day the fund is depleted. Even if the reform is implemented, it does not mean big benefits to youth. Nevertheless, the establishment of a system for social and political consensus carries great significance. The establishment must give the next generation the belief that they can confront a looming danger and address it. That’s the beginning of hope.