Pension Benefits to Be Slashed in 2004;Public Outcry Seen

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Pension Benefits to Be Slashed in 2004;Public Outcry Seen

By Lee Chi-dong, Financial Times

May 06, 2003

Korea - National pension benefits are likely to be reduced from next year, while premiums are expected to increase, according to an official of the Ministry of Finance and Economy (MOFE).

He said the likelihood of the income replacement rate for National Pension Fund recipients decreasing from the current 60 percent to 50 percent from next year was increasing.

He added that the move follows the release of estimates showing that the current scheme may become unsustainable after 2035.

The replacement rate refers to the amount of money a person can receive from the pension corporation compared to his or her average income during the time they paid premiums.

In addition, the official said the pension premiums may increase by 6 percentage to 15.95 percent for five years from 2010.

``He measures could draw flak, but must be contemplated in order for fiscal stability to be restored to the national pension system,¡¯¡¯ he said, adding that if changes are made, the pension fund will remain in the black until at least 2050.

However, the ministry said there were two other proposals that will be addressed by the pension fund review committee late this month.

One of the proposals outlines an increase in premiums to 19.85 percent with the replacement rate remaining unchanged at 60 percent, which is favored by labor unions and civic groups. The other plan, though viewed as being unrealistic by many in the 20-organization review committee, outlines slashing the replacement rate to 40 percent, while keeping premium increases down to 11.85 percent.