[Yun Suk-myung's Perspective] To Succeed in Pension Reform, the Actual State of Affairs Must Be Transparently Disclosed

[JoongAng Ilbo · Yun Suk-myung's Perspective · August 11, 2023]

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

How to Reduce Resistance to Pension Reform

The fifth Financial Estimation Committee for the National Pension is in its final stages. The Special Committee on Pension Reform of the National Assembly has also launched its second committee and is discussing various topics. Although things are currently quiet during the summer vacation period, attention is expected to shift toward pension issues starting with the National Pension public hearing scheduled for late August. If everything proceeds as planned, the comprehensive National Pension operation plan prepared by the government after the public hearing will be submitted to the National Assembly in October after passing through the Cabinet meeting. In October, the details of the discussions within the National Assembly Special Committee on Pension Reform will also come into view. Indeed, the season for pension issues to receive attention is approaching.

Since the general election is approaching, there is a possibility that discussions on pensions may lack vitality. Instead, it is highly likely that they will toy with the Basic Pension card, which is paid for by collecting taxes. Along with presidential campaign promises to increase the pension amount to 400,000 won per month, a bill has been introduced in the National Assembly to provide the Basic Pension—currently paid to 70% of older people—to all older people aged 65 and over.

Public opposition to reform is high when the actual state of pensions is unknown, but support for pension reform increases dramatically after learning the relevant details; the actual state of the National Pension—the shortfall relative to the amount to be paid, with unfunded pension liabilities exceeding 130% of GDP and more than 70 million won per contributor—must be disclosed.

Opposition to painful reform when the actual state is unknown

The results of a recent survey on pensions released by the Korea Enterprises Federation suggest that it is necessary to approach pension issues more systematically. According to the '2023 Public Perception Survey on National Pension Issues' conducted among 1,026 adults, 54.6% of respondents are negative about raising the eligibility age for the National Pension to 65 or older. 70.8% were also negative about increasing contributions from the current 9%, and 53.5% did not agree with the plan to extend the contribution period. Since there is much opposition to measures that would show visible reform effects, one might conclude that reform has fallen through. These are results to which the government and the ruling party may react sensitively ahead of the general election.

In a way, these results can be seen as natural. People answer negatively when they are told to contribute more and receive benefits later in a situation where understanding of the circumstances facing our pensions is not high. It is highly likely that they answered on the premise that many options are still available to us. This is why the case of the United Kingdom, which achieved successful pension reform through a proper public deliberation process, is important.

"Public Consultation and Citizen Learning for Successful Pension Reform: The UK Case and Implications," presented by Professor Kim Young-soon of Seoul National University of Science and Technology at the National Assembly Special Committee on Pension Reform advisory meeting, calls attention to the importance of the public deliberation process. Prior to pension reform, the United Kingdom began an in-depth opinion survey. The Department for Work and Pensions prepared 11 questions and received 1,600 responses from 102 organizations over 12 weeks. They also held in-depth consultations with stakeholders, regional touring debates, and an event called "National Pension Day."

"Additional Pension Burden for the Working Generation" — 62% in Favor

These are five questions used in the UK's "National Pension Day" survey. "First, if one becomes a pension beneficiary, they will inevitably live more poorly than other members of society. Second, more taxes must be spent on pensions in the future. Third, individuals must save more for their old age. Fourth, pension contributors must work longer. Fifth, employers must also contribute to the pension burden of employees." These questions are organically linked. They inform people that if things remain as they are, they will inevitably live in poverty upon becoming pension beneficiaries, and to prevent this, they must contribute more, work longer, and employers must also contribute more. Through this, it imprints the fact that pension reform is inevitably painful. Rather than a simple survey, proper question design and prior learning to understand the relevant content are important.

We ask questions without sufficient learning about pensions. Because the level of understanding regarding the current status is low, people respond perceiving that there are still many options available. The aforementioned Korea Enterprises Federation survey also falls into this category. Conversely, the UK's "National Pension Day" survey confirms the importance of prior learning. There is a significant difference in responses to the same questions asked twice, before and after the debate.

The results of the UK survey are as follows. After the debate, opinions opposing living as a poor pension beneficiary increased by nearly 20 percentage points compared to the first survey. The agreement rate for increasing burdens and raising the eligibility age for pensions also increased significantly. Although slightly, there were more opinions agreeing to an increase in employer burdens. These are results brought about by prior learning and a proper survey.

We also have a similar case. A pension-related survey in the recently aired EBS 'Documentary K Population Grand Plan: Ultra-Low Birth Rate' special is one such example. Like the UK, the EBS special conducted surveys twice. It surveyed 500 people nationwide, from their teens to their 70s, both online and offline. Compared to when they had no prior knowledge, the survey results changed dramatically after learning about the relevant content. After showing projection data indicating that, due to the plummeting birth rate, the age group receiving pensions will outnumber the population burdened with funding them, the survey results were as follows. 62.4% agreed that "the working generation must bear additional pension burdens." Regarding the statement that "pension amounts should be adjusted so that beneficiaries receive less," the agreement rate exceeded half at 55.4% after learning about the changes in population structure. These results show that pension reform can be possible if the reality we face is properly communicated.

Importance of the President's Will and Leadership

We must note Professor Kim's point that 'diagnosis and policy based on clear evidence, transparent information disclosure, and an active media strategy' are prerequisites for successful pension reform. Various pieces of information and expert debates that come to light during the pension reform process can become part of a learning process that allows people to properly understand reality. Expert discussion processes can also serve as a mechanism to alleviate the burden that the government must shoulder. I have argued that the contents of expert discussions in various committees should be transparently disclosed.

This is Professor Kim's diagnosis. "In Korea, the union organization rate is low, and there are no organizations representing the self-employed and vulnerable workers. Considering our reality where confrontational party politics have become commonplace under a two-party system, the possibility of success is higher if the pension issue is approached through a government-led public consultation model rather than a National Assembly-led party agreement model. Since we have adopted a presidential system, the will and leadership of the highest level of power are more important than anything else."

In the United Kingdom, which adopts a parliamentary system, former Prime Minister Tony Blair devoted five to six hours a week to pension-related work from 2002, when pension reform discussions began, until a final compromise was reached. Gareth Davies, who served as the social security advisor to the Policy Unit at 10 Downing Street during Prime Minister Blair's tenure, said, "At 10 Downing Street, where the UK Prime Minister's office is located, there are countless materials and proposals that could change the world. What matters is where the Prime Minister's time, effort, and available resources are spent." Successful reform can only be achieved by investing a significant amount of time and passion.

Unfunded Pension Liability Is a Time Bomb

In this context, it is necessary to look back at the situation in 2006–07, when the President and the Minister of the relevant ministry emphasized the urgency of reform. At that time, the means used to convince the public of the inevitability of reform was the rapidly increasing unfunded pension liability. The expression that "the unfunded pension liability, which increases day by day, is like a time bomb ticking over our heads" was able to impress upon the public the desperation for pension reform.

Despite the existence of such an effective means, the National Pension Financial Estimation Committee and the National Assembly Special Committee on Pension Reform refused to disclose the unfunded liability of the National Pension. Unfunded liability refers to the amount that is insufficient compared to the pension amounts already promised for payment. According to my estimates, the unfunded liability of public pensions, including the Government Employees Pension, exceeds 130% of the gross domestic product (GDP) at a conservative estimate. The unfunded liability of the Private School Teachers Pension, which has 330,000 contributors, is 170 trillion won, meaning each contributor owes more than 500 million won in debt. The National Pension also carries a debt of more than 70 million won per contributor. If these details are properly communicated, reform can be possible. There is also experience of succeeding in reform by utilizing this. This is why I repeatedly argue that the unfunded liability of the National Pension must be disclosed.

Recently, the 'Continued Employment Research Group for a Super-Aged Society' was launched under the Presidential Committee on the Economy, Society, and Labor. I would like to evaluate this highly in that important discussions that can support pension reform have begun. If various forms of employment extension options are presented, momentum for pension reform, such as extending the pension contribution age, can be gained. Now is the time to make every effort to ensure that reform is achieved by combining necessary measures with research that can form public opinion favorable to reform, much like the Continued Employment Research Group of the Presidential Committee on the Economy, Society, and Labor.

Source: JoongAng Ilbo (original article)