No further delay innational pension reform

Editorials

No further delay innational pension reform

Published: 05 Sep. 2024, 20:04 Updated: 05 Sep. 2024, 20:04

The government has finalized its outline to reform the deficit-bound national pension scheme. Under the outline announced by Health Minister Cho Kyoo-hong pending legislative approval, the aim is to improve the sustainability of the national pension by increasing the premium rate and decreasing the payout rate.

This is the first time the government revisited the system since 2003. The government took its time as the measure arrives halfway into President Yoon Suk Yeol’s five-year term although the reform had been one of his major campaign pledges. The initial draft released in October last year mostly drew scorn for recycling material and lacking substance.

Pension reform cannot be delayed, as the funds can be entirely depleted in 2056 with the current structure. For the pension to keep to its role, the government would have to sharply raise taxes or issue debt. Either way, the slower the delay in reform, the greater the burden for future generations.

The government’s plan falls short of ensuring the sustainability of pension. It proposes incrementally raising the premium rate of 9 percent of the income to 13 percent. The income replacement ratio would be upped to 42 percent from the current 40 percent by 2028. The earlier Democratic Party-led compromise suggested raising the contribution rate to 13 percent and the replacement rate to 44 percent. The government softened the benefit rate while keeping the same raise for the contribution rate. A greater payout can add to old age security but is also detrimental to pension security. If the revision to the pension act passes, the depletion of the fund can be deferred by 16 years to 2072, the Health Ministry said. However, pension would require more fixes in near future.

The legislature will rigorously review the reform. It is important to place collective interests before individual ones. The differentiated raise in the pension contribution rate could stoke protests across generations.

But a universal raise is unfair for the younger generation. There is a need to deliberate allowing an automatic system to adjust the payout rate depending on demographic changes, subscriber numbers and economic conditions. With such provision, the country can save the hassle of going through a reform bill every time our pension sustainability is in question. The automatic adjustment system is common among developed countries that faced a money-losing structure from aging. Pension benefits can adjust according to the inflation rate, but the older generation must yield to share the benefits with the younger generation.

The reform is now in the court of the legislature. The legislature must reach a bipartisan agreement as there is limited time before election season arrives. The rivalling parties must address the issue with a sense of political duty to future generations.