Don’t shift the burden to the young

Joo Jung-wan
The author is an editorial writer of the JoongAng Ilbo.

The national pension reform should not be hastily decided as if haggling for a bargain in a market. The pension reform bill could have caused a lasting harm on the people — instead of saving it from a deficit black hole — at the last minute in the 21st National Assembly. Both the governing People Power Party (PPP) and the majority Democratic Party (DP) should be ashamed of dilly-dallying on the reform throughout their four-year term.

As soon as the 22nd legislature opened on May 30, the DP threatened to submit multiple special counsel bills. Only a week ago, the party urged the government and the PPP to deal with the reform. If the DP had been genuine, the pension reform should have been the first bill to be tabled in the new Assembly. DP leader Lee Jae-myung mentioned pension reform during a supreme council meeting last Wednesday, but he seems to prioritize those special motions against the government over the reform.

The government and the PPP are worse off. PPP floor-leader Choo Kyung-ho pledged to push for the pension reform first, but what the party intends to do and how is unclear. Let’s return to the fundamental question. Why is pension reform needed? Is the objective to increase or reduce the burden on the future generation? Few would want to benefit at the expense of the future generation’s losses. We must not let the deficit reach astronomical figures as the young or future generations have little say in the matter. It is the contemporary’s responsibility to ensure the pension benefits last for the younger generation.

Our current pension system is structurally designed to lose money as it collects lightly and pays out generously. Lee Chang-soo, a professor at Soongsil University who chairs the Korea Pension Association, compared the contribution-based national pension to a Ponzi scheme as its benefits mostly go to the early contributors and leave little left for the latecomers. “At some point, the young could revolt,” he warned.

To avoid a catastrophe, the pension system must be restructured to collect more and pay out less. Any other alternatives will end with a heavier burden for the next generation. Anyone who cares at all about the future generation would not dare to demand higher benefits, or an increase in the income replacement rate. We cannot ask the younger generation to bear a greater burden when they are already geared for smaller returns than us. Even a marginal lift of 1 to 2 percentage points in the income replacement rate will snowball into an enormous deficit over decades.

Many point to the worsening poverty rate of the old population. But the problem should be solved through the basic pension and other social security. During the government under President Roh Moo-hyun in 2007, the legislature reached a bipartisan agreement on the basic pension and a lower replacement rate in the earnings-pegged national pension. As the poor could not afford to make monthly dues for the pension, a higher return rate would not have any meaning to them in their old age.

Pension reform will have meaning only when it reflects the voices of the young. The government must let them be fully aware of the dangerous financial condition of the national pension and ask for their thoughts. The government must make it clear that its responsibility for the national pension means a spike in taxes and astronomical debt.

The new legislature must immediately form a special pension reform committee. It must be composed mostly of young lawmakers. More than a half of the members of the last committee, including the chair, was aged 60 and older. Of 13 members on the special committee, there were only two 40-somethings and none in their 30s. At least on the pension issue, the young must hold the key to reform.