Korea's Pension Deliberations Trapped in the Galapagos

[Hankook Ilbo · Opening the Morning · May 25, 2023]

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

Interest in pensions is growing among the younger generation. I felt this while giving special lectures on pensions at organizations such as the social cooperative Parti, the New Growth School study group, House Assembly, and the Youth Political School. I am realizing it further as I receive requests for interviews and columns related to pensions from Seoul Women's University, Yonsei University, Sogang University, Keimyung University, Sookmyung Women's University, Ewha Womans University, and Kyungpook National University.

The reason the younger generation has become interested in pensions is that the sustainability of our pension system has dropped significantly. "How can an overhaul plan be called a reform plan if pension beneficiaries and contributors who are close to retirement do not share the pain?" These are words I cited as the voice of the younger generation during a debate on the "Desirable Direction of Pension Reform," which was one of the events at the '2023 Korea Forum' hosted by Hankook Ilbo on the 10th.

Last month, at the invitation of Chairperson Joo Myung-hyun of the Private School Teachers Pension Service, I gave a special lecture to employees in Naju, South Jeolla Province. This was based on Chairperson Joo's judgment that the employees should also know why I wrote the 'Opening the Morning' column titled 'The Private School Teachers Pension Requires Extraordinary Measures.' Here is what I said during the lecture: "The future of the Private School Teachers Pension, which has been hit directly by the low birth rate, is the bleakest among public pensions." "As hospital staff gain eligibility for the Private School Teachers Pension, the number of hospital staff contributors will eventually exceed that of teaching staff."

"It seems most professors, including those at Seoul National University, are unaware of this fact. The unfunded pension liability of the Private School Teachers Pension submitted to the National Assembly Special Committee on Pension Reform is approximately 170 trillion won." "This means there is an unfunded liability of 500 million won per person for the 330,000 contributors to the Private School Teachers Pension. Despite the fact that the Private School Teachers Pension recently received an excellent rating in its fund management evaluation, the unfunded liability can only increase over time. There are almost no experts pointing out these serious problems of the Private School Teachers Pension. For reference, unfunded liability refers to the amount that is insufficient to pay the pension amounts already promised for payment. Despite this situation, people calling themselves experts are dividing sides and representing specific camps rather than making efforts to increase sustainability. You must act as a catalyst for pension reform by widely publicizing the difficult reality facing the Private School Teachers Pension."

I also raised the inevitability of operating the public pensions on an integrated basis. I said the schemes should be run so that transparent comparison is possible, not merged into one. I explained a plan under which members would receive benefits identical to the National Pension plus severance pay identical to the private sector's, while the extra 4.5 percentage points of contributions that Private School Teachers Pension members pay would be returned as additional benefits paid in a way that causes no fiscal instability.

Shortly thereafter, I received a call from an official at the Private School Teachers Pension Service. They said that the employees' reaction to the lecture did not seem to be bad. If this is true, an important lesson can be learned: if we convey the reality we face properly, the voices opposing reform may not be as loud as thought. The problem lies in the constant distortion of facts by groups trying to protect vested interests and use the pension system for political purposes. This is the background behind why I have emphasized that the transparent disclosure of data is a prerequisite for pension reform.

Since the 24th, the 17th meeting of pension experts from the Organisation for Economic Co-operation and Development (OECD) has been held in Seoul. The theme of this meeting is the automatic adjustment mechanism for pension fiscal status. It is a meeting to discuss the operational status and supplementary measures of the systems in Germany, Finland, and Japan, which have already introduced automatic adjustment mechanisms. Since other countries introduced automatic adjustment mechanisms some 20 years ago, they are discussing ways to supplement problems that appeared during the implementation process. We, who need the introduction of an automatic adjustment mechanism more than any other country, are moving backward in time. This is because voices calling for higher pension benefits due to insufficient old-age income are heard louder than efforts to extend the contribution period through labor market reform. This is why it is said that Korea's pension deliberations are trapped on the Galapagos Islands.

Source: Hankook Ilbo (original article)