How to further burden future generations

The pension reform option favored by citizen representatives to the National Assembly Special Committee on National Pension Reform is sounding alarms. A subcommittee responsible for tapping public opinions announced that a majority (56 percent) of the citizen representatives supported the idea of raising the premium rate to 13 percent from the current 9 percent and the replacement ratio to 50 percent from 40 percent. The proposal looks no different from the second option that recommends the raise of the premium rate to 12 percent while keeping the income replacement rate at 40 percent.

But the problem is that under the first option, the premium rate will snowball to up to 40 percent after 2061, meaning financial burdens for the young currently under the age of 20. That’s because the replacement rate went up much faster than the gains in the premium rate.

Pensions will fall into a deeper deficit under the design of paying a bit more and receiving even more. The National Assembly Budget Office estimates the deficit will increase by a whopping 702 trillion won ($509 billion) over the next 70 years under such a loss-making structure.

The pension fund is also affected by many other factors, including the return rate of the assets managed by the fund, subscription age and the basic pension. Reforming the system demands rigorous deliberation with eyes on a century later. It cannot be decided simply through a poll on 492 citizens. Today’s adults may reap the results of higher payments at the expense of heavier burdens on their children.

The Korea Development Institute (KDI) in February proposed to separate the pension for the older and younger generations so as not to put a heavy burden to the younger generation. Under the KDI recommendation, the younger generation in midlife would bear a premium rate of 15.5 percent, whereas the cost would double under the outline of citizen representatives’ choice. After paying for health insurance coverage and income tax dues, the future generation will have little left in their paychecks. With the total fertility rate that hit 0.72 last year expected to fall under 0.7 this year, the future could be bleak for the country.

Pension reform cannot be put off further. The premium rate stuck at 9 percent should be lifted. But the reform loses meaning if the replacement ratio increases only to benefit the older generation. The special committee in the legislature must deliberate with greater discretion before finalizing its plan. A political clash is inevitable, as the majority Democratic Party welcomed the results of the poll while the governing People Power Party criticized the opposition for exploiting populism for its own interest. Rivalry aside, a reform must not work decisively against the young generation.