To Prevent Pension Reform From Losing Its Way Once Again

[Hankook Ilbo · Opening the Morning · May 19, 2022]

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

Pension reform has been included as a national policy agenda item of the Yoon Suk-yeol administration. It is said that a presidential 'Public Pension Reform Committee' will be established to discuss pensions overall. In the presidential address to the National Assembly on May 16, the President emphasized that pension reform is inevitable for a sustainable society. He also presented a policy vision to build a dense social safety net alongside pension reform. As the President personally expressed his will for reform, concerns that he might be lukewarm toward pension reform have been dispelled.

Among OECD member countries, our country has the worst pension operating environment. Even though the President emphasized that reform is urgent, there is a lingering sense of unease. This is because the presidential committee could degenerate into a performance hall for diverse voices and waste precious time. This stems from having witnessed countless unproductive discussion processes in committees composed of various stakeholders.

The background behind the President emphasizing the urgency of pension reform in his first address to the National Assembly seems to include considerations for the cooperation of the opposition party. This is because passing bills is difficult without the cooperation of the opposition. Given this situation, there is a possibility that only the increase in the Basic Pension amount, over which there is no disagreement between the ruling and opposition parties, will be easily processed. While proper reform is painful, increasing the Basic Pension is something everyone can take credit for.

Since the Basic Pension is 'full of problems,' there is a risk that attempting to remove a burden may instead add another. Although the reason for introducing the Basic Pension was to alleviate the high elderly poverty rate, the nature of the scheme has become ambiguous, and conflict with pensions for which contributions are paid is inevitable. If the Basic Pension is increased to 400,000 won as per the presidential campaign pledge, it will become similar to the average amount of the National Pension (including special pensions) received after paying contributions. For a couple, even with a 20% reduction, 640,000 won per month is paid. The pension amount received without paying contributions becomes greater than the pension received by paying contributions. If the National Pension amount exceeds 460,000 won per month, the Basic Pension amount can be reduced by up to 50%. This is why it is viewed that vulnerable groups will lose the incentive to faithfully enroll in the National Pension.

Because it is paid to up to 70% of the population aged 65 and older, one can receive the Basic Pension even with substantial earned income. This is because when selecting eligible recipients, 30% of the remaining earned income is additionally deducted after deducting 1.03 million won in earned income. Income from jobs for older people is excluded from earned income entirely. This is why even an older person with a monthly earned income of 4 million won can be a beneficiary of the Basic Pension.

Consequently, a significant number of Basic Pension beneficiaries are not poor older people even by OECD standards (970,000 won per month). The frustrating part is that older people exposed to absolute poverty (583,000 won per month), which is much lower than the OECD poverty line, receive the same amount of Basic Pension as those who are not poor. This is why the required financial resources are snowballing while the elderly poverty rate fails to drop drastically. Despite this, whenever election season arrives, older people pulling carts and collecting waste paper appear on TV screens. Even though there are many older people spending time in cafes, it is misrepresented as if all older people make a living by collecting waste paper. This has long been recycled as an argument for increasing the Basic Pension during every presidential election.

These are the grounds why pension discussions are likely to go astray despite the President's strong will. The success or failure of pension reform depends on whether the bare face of the current pension status and the actual living conditions of older people can be properly revealed. This is why a fact report on controversial and distorted issues must be written and undergo a verification process before the committee is launched. The President must provide support so that the relevant ministry, neutral experts, and the media can join forces to create a proper fact report and have it verified.

Source: Hankook Ilbo (original article)