The Government's Pension Reform Plan — I Hope It Is Properly Understood Before Questioning During the National Assembly Audit

[Asia Today · Yun Suk-myung's Pension Reform Stories · October 7, 2024]

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

Ahead of the National Assembly audit, the criticisms raised primarily by opposition lawmakers regarding the government's pension reform plan are as follows: "It is difficult to accept because it runs counter to the citizen representatives' 'national consensus to pay more and receive more.'" "The 'differential contribution burden by age,' which encourages generational division, has no precedents worldwide." "From the perspective of strengthening public pensions, the 'automatic adjustment mechanism intended to automatically cut pensions' is difficult to accept." If the general public, who are unfamiliar with the actual facts, encounters such criticisms, they may think that the government is obstructing the citizens' decision.

Let us first evaluate the claim made by Jin Sung-joon, chair of the Democratic Party of Korea's Policy Committee, and others, that the government plan "runs counter to the national consensus." The reason why a majority of the National Assembly Public Deliberation Committee's citizen representatives chose a plan that places a heavier burden on future generations than before their learning sessions was that they were taught using materials from which key data had been deleted. Under the '50% income replacement rate—13% contribution rate' plan chosen by the majority of the citizen representatives, there is a 21.3 percentage point difference in the lifetime National Pension contribution burden between those born in 2005 (14.8%) and those born in 2035 (36.1%). The citizen representatives made their decision without knowing this critical information.

This content is missing from the new learning materials created after discarding the contents of the original learning materials. Kim Se-yeon, a former Representative who served as Chair of the Health and Welfare Committee and head of the Yeouido Institute, evaluated this by saying, "If a misjudgment was induced by intentionally deleting such important information from the citizen representatives' learning materials, this is virtually no different from a criminal act." The political sphere's claim to follow the decision of the citizen representatives must be mindful that it may give the impression of condoning an issue that could constitute a criminal act.

Setting aside such judgments, do you believe it is not important that lifetime contributions differ by 21.3 percentage points (2.4 times) over 30 years? If so, is this not the very definition of 'generational division'? This is because they are packaging it as 'the operating principle of public pensions is intergenerational solidarity' while shifting an enormous burden onto generations not yet born.

Representative Kim Sun-min of the Rebuilding Korea Party, who criticized the government plan by stating that "no country has yet introduced 'differential contributions by generation,'" introduced the amendment (bill) for writing a state guarantee of benefit payment into the National Pension Act. In our reality, where coverage gaps in the National Pension are extensive and benefits are concentrated on those who stay in good jobs for a long time, they call a National Pension overhaul that imposes a much heavier contribution burden on future generations 'pension reform.' While opposing the government's fiscal stabilization measures, they suggest writing into law a payment guarantee that will eventually be passed on to future generations as a tax bomb.

Since the National Pension Research Institute reportedly submitted cases of differential contribution burdens in Finland to Representative Kim Sun-min, Representative Kim's claim that there are no precedents worldwide is also incorrect. The argument that we should not do it because there are no precedents is the same logic as saying we should not have introduced pensions when Germany first did so because there was no precedent.

Even if the government plan is implemented, unfunded pension liability (meaning the amount lacking compared to the pension amounts already promised for payment) will continue to increase. According to a presentation by Professor Jeon Young-jun of Hanyang University at a recent Pension Future Forum seminar, even if the government plan is implemented, unfunded liability will increase up to 64.4% of GDP. This is because contributions are 7.7 percentage points lower than the 20.7% required for a balance between contributions and benefits. Yet, they say more taxes should be added. Who primarily bears those taxes? Most of it falls on the younger generation and future generations. Is this not the very definition of generational division? This is because they suggest sacrificing future generations to pay pensions for the current generation. Major advanced countries have reformed their systems so that people receive pensions only as much as they contributed. They fixed it so that one receives what one paid.

The latest point at which the automatic adjustment mechanism proposed by the government begins to operate is 2054, 30 years from now. This is 55 years after Sweden, which introduced it in 1999, and 50 years after Japan and Germany. Even so, can it be said that the government is focusing on cutting pensions? If a country fails to introduce such a mechanism even 50 years after other countries, can that country survive? Especially in a country with the worst demographic structure.

At the 6th Pension Future Forum seminar, Professor Emeritus Ok Dong-seok of Incheon National University emphasized the 'tragedy of the commons.' He criticized claims that the state should unconditionally take responsibility, based on values from the medieval era when kings ruled. The 'state,' to which all responsibility is being shifted, is operated by the taxes paid by us as individuals. People say the state should take responsibility because contributions are burdensome, but that state is operated by taxes coming out of someone's pocket. They are demanding things of a democratic republic in the same way they once demanded them of medieval kings. The reason why the 'tragedy of the commons' is particularly severe in Korea seems to be that populists and agitators have entered the pension debate.

In 2004, when pension discussions fell into a deadlock due to opposition from the opposition party after the government submitted its plan to the National Assembly in 2003, it seems necessary to quote my contributed article, 'What Do Advanced Pension Welfare Countries Do,' which was published in the Roh Moo-hyun administration's State Affairs Newsletter (1992-2004). This is because I believe our political sphere, which begins by criticizing government plans using reasons that would not even work in the Paleolithic era during the age of the Fourth Industrial Revolution, should reflect on this.

"The core of the pension reform plan announced by Austrian Chancellor Wolfgang Schussel in 2003 was to delay the pension eligibility age and increase the contribution period while discouraging early retirement. Labor unions in Austria, where corporatism is traditionally strong, protested the government's pension reform plan and launched a general strike for the first time since World War II to pressure the government that submitted the plan. Feeling burdened by this, the Austrian government asked the opposition party for an alternative pension reform plan; however, because the opposition party expressed the position that the government's reform plan was indeed the best direction for institutional improvement to cope with the expected aging society, the pension reform could be successfully completed despite fierce opposition from the unions. (Korea Policy Briefing, June 11, 2004)."

Now, I hope the opposition party will not only seek to criticize the government plan during the National Assembly audit but also present alternatives that can strengthen old-age income while reducing the scale of the burden passed on to future generations. However, if they attempt to take the public and the media in by agitation based on content that contradicts the facts, they will pay a correspondingly severe price. Please keep in mind that every single statement made by lawmakers during the upcoming National Assembly audit will be closely monitored.

Source: Asia Today (original article)