[The Fountain] What matters is the will to push pension reform
JANG WON-SEOKThe author is a securities news reporter of the JoongAng Ilbo.
No pension product on the market offers a higher return than the national pension. First, it reflects inflation. The pension bases payouts on the income converted at the time of receiving them, not the time of joining the program. It also has a good benefit-cost ratio of 2.2, which means subscribers can get more than twice the premiums they pay. The benefit-cost ratio is higher for those who are older. When the national pension first opened in 1988, many subscribers had to care for their parents while taking responsibility for their own future. As a result, the premium is designed to be paid less at first and increase gradually. In fact, the premium rate which started at 3 percent went up to 6 percent in 1993 and to 9 percent in 1998.
Other advanced countries also use such a system for their national pension programs. There were calls to raise the premium rate in the past, but they were hushed every time. As calculating votes is important to politicians, no politicians shouted for “more payments for the future.” Twenty-four years have passed since. The premium rate should have been raised to share the burden, but it didn’t happen. As a result, the older generation who paid the pension premium during this period benefitted more than others.
If things go as predicted, the National Pension Fund will be depleted by 2057. When the reserve runs out, the pension premium collected in a certain year should be paid out that year. By then, the premium rate will jump to about 35 percent. You pay 9 percent and receive the payout, but your children would have to pay four times more to get paid.
President Yoon Suk-yeol said, “I won’t avoid my historic responsibility for pension reform.” I welcome his determination. But the debate on pension reform is a tough process as the government must solve a complicated formula of premium rate, income replacement rate, timing of receipt, and integration of several pensions.
Fortunately, experts mostly agree on upping the premium rate. A 3 percent increase can delay the depletion of the fund by 8 years, giving less burden to the future generation. If the current government finalizes a phased increase in the premium rate and present a scenario for the future, it could be considered a success. It is not a reform that should be finished by the “end of this administration or the beginning of the next administration,” as the president said. What matters is the will to push the pension reform according to a plan fixed.
with the Korea JoongAng Daily
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