The MZ Generation Must Demand Pension Reform

[Seoul Economic Daily · Op-Ed · October 18, 2021]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA) (President of the Korean Pension Association)

One cannot help but sigh upon learning the reality facing our pensions. As of 2020, the national debt attributable to the Government Employees Pension and the Military Pension totaled 1,045 trillion won. In just one year, they increased by 100 trillion won. The unfunded pension liability of the National Pension, which the government does not disclose, already far exceeded 1,500 trillion won several years ago. The net increase last year alone was at least 50 trillion won. Even excluding the Private School Teachers Pension, which is a mass of insolvency, more than 411 billion won in pension liability accumulated daily last year.

The fact that the unfunded liability exceeds 1,500 trillion won despite the National Pension having 830 trillion won in reserves as of the end of 2020 means that the pension amount promised to the insured of the National Pension is over 2,300 trillion won. In other words, it means that a further sum twice what has been accumulated is needed to pay the benefits properly.

Let us examine what will happen in the future through changes in the National Pension reserves. After reaching 1,778 trillion won in 2041, the reserves will be depleted in 2057, when the MZ generation begins receiving pensions. This is not the only amount that will vanish over those 16 years. An astronomical sum, combining investment income up until the reserves are depleted and the contributions paid by the insured every year, will disappear. This is because 410 trillion won will flow out as benefit expenditures in 2057 alone as the generation that only paid contributions begins to receive pensions in earnest.

But this is not the end. This is because the cumulative deficit will reach 17,000 trillion won by 2088. The National Pension reserves of 830 trillion won are hiding a future catastrophic situation. This is the case for the National Pension, which has the best financial situation among them. It is a total disaster when the far more serious Government Employees Pension, Military Pension, and Private School Teachers Pension are considered. The Basic Pension, whose payment amount is raised every election, is another headache. This is because it is a scheme funded solely by taxes without any contribution burden.

Despite this situation, the Moon Jae-in administration did not even attempt reform over the past four years. Rather, it wasted that precious time by claiming it would provide more pension benefits.

If proper reform is not carried out in a timely manner, all burdens will be shifted to the MZ generation and future generations. This phenomenon occurs as the previous generations, who bore smaller burdens, see their pension receipt periods increase significantly due to increased life expectancy. If left neglected in a situation where the fertility rate has plummeted, young people and future generations will have no choice but to spend a significant portion of their income on pension contributions and other social support.

At this point, let us look at the situations in other countries. Germany and Japan, the model countries for our pension system, are good points of comparison. Germany, which provides benefits at a similar level to ours, has collected contributions over the past 50 years that were up to five times, and at least twice, as high as ours. In 2004, it even carried out reform by introducing an automatic adjustment mechanism for pension finances to prevent further increases in pension liabilities. It achieved depoliticization in the operation of the pension system.

Japan's Employees' Pension Insurance has secured reserves to cover one year of payments even 100 years from now, in 2120. This stands in stark contrast to our National Pension, whose cumulative deficit will reach 17,000 trillion won by 2088. In 2004, Japan introduced an automatic adjustment mechanism to break the cycle of increasing burdens shifted to future generations. Since 2015, it has applied the same pension system to both general citizens and civil servants.

Was reform easy for these countries? It was likely possible because politicians who worried about the nation's future persuaded the public, and the public accepted it despite the pain. For us, having boarded the high-speed train of population aging, there is only a mire from which it is difficult to escape. Now, the MZ generation, as stakeholders, must step forward. This is because there are no pension reform pledges from leading presidential candidates. The MZ generation must rise up and demand a concrete roadmap on how to implement reform during the term, rather than vague pledges. If this situation is left neglected, your future will be a catastrophe itself. It is time for you, the primary stakeholders, to step forward and correct the pension system, which has degenerated into a means of buying votes.

Source: Seoul Economic Daily (original article)