[JoongAng Commentary] 'The Generation Poorer Than Their Parents' and Korea's Pension Politics

[JoongAng Ilbo · JoongAng Commentary · November 2, 2021]

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

Ismo Risku, a director at the Finnish Centre for Pensions and a long-time acquaintance, often asks me: "The pension system seems unsustainable due to the low fertility rate; what preparations is Korea making?" And this is what a Japanese official, a presenter at a Korea-China-Japan pension expert seminar last year, asked me: "How can Korea pay out larger pension amounts than Japan while contributing far less?"

"Korea is boarding a high-speed train called aging." These were the first words of Mika Vidlund, an overseas cooperation officer and discussant at a symposium recently co-hosted by the Korean Pension Association and the Finnish Centre for Pensions. "If we assume a fertility rate of 1.0, long-term Finnish pension contributions are projected to reach 37%," stated Mikko Kautto, Chair of the Finnish Centre for Pensions.

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Finland, where the fertility rate has recently plummeted to around 1.4, does not conduct financial projections for its pension finances assuming a fertility rate of 1.0. This is because the fertility rate had been around 1.7 for a long time. The reason Chair Mikko showed the projection based on a 1.0 assumption was due to a special request from the Korean Pension Association. For reference, a fertility rate of 2.1 is required to maintain the current population size.

One common debate in Korea is how one can project events 70 years into the future when one does not even know what will happen a month from now. This is one of the main arguments for not trusting the government's pension financial projections. Some also criticize it as a means of "fear marketing" that exaggerates the severity of the pension problem.

This is why I asked the Finnish side to show projections applying similar assumptions, citing that Korea's fertility rate was 0.84 last year. It seems they felt burdened to show results estimated at the 0.8 level. This was because they wondered how a fertility rate could possibly drop to the 0.8 range. The figure resulting from special work by the Finnish pension center under Chair Mikko's direction is a contribution rate of 37%. Finland's current contribution rate, which will provide pensions at a similar level to ours in the long term, is 24.4%. This stands in stark contrast to us, who have paid a 9% contribution rate for over 20 years.

The 20th presidential election is not far off. Among the pledges of leading presidential candidates pouring out frantically every day, pension reform pledges are missing. This is because they are viewed as unhelpful for gaining votes. Officials who well understand the severity of the problem are also merely reading the room.

In Korea's pension system, where liabilities are accumulating by more than 400 billion won every day even by the most conservative estimate, there are almost no groups raising issues. "Will anything happen while I am alive? If there is no money to pay pensions, we can just collect more taxes. It is not an urgent fire under our feet, so we can reform slowly." It is a parade of self-rationalization.

The Government Employees Pension and the Military Pension, which increased national liabilities by over 100 trillion won in 2020 alone, are said not to be big problems. The National Pension, which is projected to accumulate a cumulative deficit of 17,000 trillion won by 2088, is also said to be without issue. This is while ignoring the case of Japan, which will still have money to pay pensions in 2120, 100 years from now. Despite this situation, looking at the remarks of the Deputy Prime Minister for Economy and the press releases of the Ministry of Personnel Management and the Ministry of Health and Welfare regarding pension liabilities, it is hard to feel that we are truly living in the 21st-century information age. This is because their responses consist entirely of claims that it is not something to worry about significantly.

They are using their brilliant minds not for the country, but to protect their own interests. This is because they believe that if reform is delayed, they can receive more in pensions throughout their lives. Some officials who have thrived due to their merit in protecting their own interests do not even seem to feel shame. Poly-professors who provide biased information to specific administrations are not even worth mentioning. The words of the then Minister of Health and Welfare 15 years ago still ring in my ears: "the National Pension's latent liabilities are increasing by 80 billion won a day; it feels like a time bomb is ticking over our heads." In a situation where the "generation poorer than their parents" is becoming a reality, they do not touch the pensions that will drain the marrow from the spines of these young people, yet they only talk about expanding welfare spending. This is why the lament of an official at the Ministry of Economy and Finance, who said, "We are living in an era of lost shame," lingers in my heart.

The UN ESCAP report defines a policy as populism if the system is unsustainable even if the public likes it. In this golden age of populists, how can we find a solution? The more difficult the problem, the more I believe that taking a direct approach is the only way to unravel the tangle.

For issues that are difficult for presidential candidates to make into talking points, I propose a plan to show the public without filter the candidates engaging in direct debates with experts. This is because I believe we can properly reveal the raw reality of our situation through presidential candidates answering sharp questions from a panel of politically and ideologically neutral experts. It would demonstrate how dangerous a situation we are in, how the presidential candidates judge this situation, and what measures they are preparing.

It would be a great achievement if we could at least elicit a resolution from the presidential candidates to take a "depoliticized approach" specifically regarding pension issues. This is because it would allow for more active problem-raising, as the burden would be distributed across the entire political sphere rather than having a single presidential candidate take the lead on pension reform.

Source: JoongAng Ilbo (original article)