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Urgent Pension Reform
The Korean Times
South
Korea
November 29, 2005
A special parliamentary panel vowed Tuesday to come up with a bipartisan pension reform plan by February. Whether the "declaration to the people" would put an end to three years of partisan brawls and political inaction should be watched with special attention. If the rival parties fail to reach an agreement by February, reforming the problematic pension scheme may have to wait for another three years amid electoral turmoil. And the longer the reform is delayed, the heavier the burdens on our children become.
Currently, the national pension fund has grown to $160 billion, the sixth largest in the world. Still many are uncertain as to whether the safety net will be strong and wide enough to ensure security in their latter years. There are two reasons: Korea is one of the fastest aging societies in the world; and the low-premium, high-payout scheme will dry out the benefit pool by mid-2040s. The government is moving to reverse it to a high-premium, low-payout model, but vote-conscious politicians are opposing it.
The ruling Uri Party agrees on reducing benefits but wants to retain the current low premiums for the time being. The opposition Grand National Party goes one step further, calling for the introduction of a basic pension, an old-age annuity given to everyone regardless of contribution. Both parties are irresponsible, bent on only short-term political gains. The ruling camp's suggestion will deplete the fund much earlier, while the opposition's proposal would incur a huge new fiscal demand.
Determining the pension's premium and benefit levels should take into account both fiscal stability and pensioners' welfare. If the government is too conservative about fiscal health, the national pension can hardly play its role, driving people to excessively tighten their belts and hurting the overall economy. Still, we think it important to secure fiscal stability, spread the benefits as wide as possible and ensure substantive benefits according to contributions, and in that order.
Even more urgent is to rectify the imbalance between the national pension and the occupational pension schemes for government employees, professional soldiers and schoolteachers. Although we should recognize the services to the nation by the three groups, their benefits are so heavy compared with premiums as to cause serious popular discontent. Also, the government ought to consider reducing fundamental demand for pensions, by raising birthrates and extending the retirement age. It is absurd that young people have to worry about their senior years as soon as they get jobs.
Pension reform is such a huge task that it can bring about governmental changes. The ruling and opposition parties are urged to transcend electoral calculations and reach a lasting formula that can withstand a possible transfer of political power.
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