Why the Amendment to the Private School Teachers Pension Act Is Urgent

[Seoul Economic Daily · Op-Ed · July 15, 2015]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA) and Adjunct Professor of Economics at Korea University

After the government and the ruling party expressed their will to overhaul the Private School Teachers Pension, opposition from stakeholders of the Private School Teachers Pension has been fierce. They argue that a social body should be created to lead discussions instead of the government. Such claims seem to lack persuasiveness. This is because sufficient discussions have already taken place during the overhaul process of the Government Employees Pension, which is similar to the Private School Teachers Pension. It is also because the Korean Federation of Teachers' Associations, representing teachers in national, public, and private schools, participated in the discussions on the Government Employees Pension overhaul.

Must Realize That 'Reserves of 15 Trillion Won = One Year's Deficit'

Given these circumstances, the positions of the Ministry of Education and the Private School Teachers Pension Service, which are responsible for the management and operation of the Private School Teachers Pension, seem to have become difficult. This is because if the Private School Teachers Pension is not amended in a timely manner, significant confusion is expected due to inconsistencies between the provisions that apply the Government Employees Pension mutatis mutandis and the independent Private School Teachers Pension Act. This is due to the regulations of the Private School Teachers Pension, where the contribution burden follows the Private School Teachers Pension Act but the benefit section follows the Government Employees Pension Act. Addenda that are not subject to the mutatis mutandis application of the Government Employees Pension are making the problem complex. The main contents of the Government Employees Pension overhaul, such as the reduction of the benefit rate and the freeze on pension increases for beneficiaries, are included in the addenda, but the addenda are not subject to mutatis mutandis application.

If the Private School Teachers Pension Act is not amended, the employee contribution rate will remain at 7%, and the pension benefit rate will be reduced to 1.7% immediately starting next year. The eligibility age for pensions will also be extended to 65 immediately. Issues regarding equity with the Government Employees Pension—where the benefit rate is reduced gradually over 20 years and the eligibility age is extended to 65 by 2033—and imbalances in the legal system are bound to emerge. This is the background why significant confusion is expected due to the conflict between the Government Employees Pension Act and the Private School Teachers Pension Act if the latter is not amended in time.

To put out this urgent fire, a swift legal amendment of the Private School Teachers Pension is inevitable. Meanwhile, there are loud voices calling for the Private School Teachers Pension to be made sustainable on this occasion. This is because the future of the Private School Teachers Pension looks bleak even if it is overhauled like the Government Employees Pension. Even in this situation, most stakeholders of the Private School Teachers Pension believe that the scheme is sound. This is because, unlike the Government Employees Pension which is in a deficit state, it held reserves of 14.7 trillion won as of the end of 2014.

Reserves of approximately 15 trillion won are a factor that creates an optical illusion regarding the Private School Teachers Pension. This is despite the fact that a deficit between revenues and expenditures of 700 billion won will occur starting in 2025, ten years from now, and by 2060, the annual deficit alone will reach 14 trillion won. The held reserves are equivalent to the deficit that will occur in just one year in 2060. The Private School Teachers Pension appears rosy only because it was introduced 15 years later than the Government Employees Pension and because university professors, who receive high pension amounts, have a retirement age of 65, meaning there has not yet been significant expenditure. Given this situation, the future of the Private School Teachers Pension is entirely bleak due to the decrease in school-age children following the decline in the fertility rate and the decrease in new teachers who would support the pension expenditure that will surge in the future.

If the amendment to the Government Employees Pension Act is followed, the date of fund depletion for the Private School Teachers Pension, expected in 2032, will be delayed by 10 years. The National Pension, which was expected to face fund depletion in 2047, delayed the depletion date to 2060 through fiscal stabilization measures in 2007. Even if it is overhauled like the Government Employees Pension, the reality of the Private School Teachers Pension is that it would be worse than the National Pension before the 2007 reform. Given this situation, it is simply frustrating to encounter the claims of Private School Teachers Pension officials who say that the government should first pay back the 317.3 billion won it has failed to pay before pursuing a legal amendment. The reason the state cannot pay its contributions on time is that it lacks the capacity to pay due to insufficient tax revenue. The current reality of our nation is that it cannot even pay 300 billion won on time, and it is suffocating to think about who will bear the massive scale of future deficits and how.

Fund Depletion in 2042 Even if 'Government Employees Pension' Is Applied Mutatis Mutandis

In this situation, opposing even a minimum legal amendment does not seem to be the correct direction for private schools, which are responsible for the nation's hundred-year plan. In a situation where surrounding conditions have changed rapidly, instead of an approach familiar from the past, wisdom must be gathered to derive a solution where preceding and succeeding generations of the Private School Teachers Pension can coexist. To achieve a proper resolution while minimizing intergenerational conflict, the reality facing the Private School Teachers Pension must be disclosed as it is. This is because nothing is as effective as sharing facts when solving difficult problems.

Source: Seoul Economic Daily (original article)