[Open World] Government Employees Pension Reform: What Are the Problems? (2014-09-10)

(At the time this column was written in 2014, the entire country was in considerable turmoil over the issue of Government Employees Pension reform.

(The photograph source for the published article is as follows: https://www.journalist.or.kr/m/m_article.html?no=34840)

Despite the disruption that accompanied those reforms, the Government Employees Pension system was revised — yet in 2025 alone, approximately 10 trillion won in public funds had to be injected just to pay Government Employees Pension benefits.

While remaining conscious of the backlash from government employees, for how long will this unsustainable system be left unaddressed?

With these concerns in mind, the author is republishing a column written eleven years ago — because the situation has in fact deteriorated further since that time.)

The country is in an uproar over the issue of Government Employees Pension reform. The government employees union, which opposes the reform, has publicly announced plans to hold a large-scale rally in early November. To draw lessons for the difficult task of Government Employees Pension reform, let us examine the experiences of Germany, Austria, and Japan.

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As of last year (2013), the average length of service among Korea's approximately 1.07 million civil servants was 17.5 years. For roughly one million of them who entered service before 2010, the Government Employees Pension must pay pension benefits exceeding — by at least 30% on a benefit accrual rate basis — those provided under the equivalent government employee pension schemes of Germany and Austria, in respect of their average service period of 15 or more years.

This is the background against which the Government Employees Pension's accrued unfunded liability of 515 trillion won and the Military Pension's unfunded liability of 112 trillion won have arisen, and it explains why these liabilities inevitably grow sharply each year. As of the end of last year, the average monthly salary (pensionable earnings) for civil servants stood at approximately 4.45 million won. Of these, approximately 240,000 (22%) earn less than 3 million won per month, while 570,000 (53%) earn 4 million won or more, and 290,000 (27%) earn 5 million won or more. Unlike the National Pension, the Government Employees Pension has no income redistribution function, and the ceiling on pensionable earnings exceeds 8 million won — making the inequality within the Government Employees Pension particularly severe.

Because most of the 2010 reforms apply only to those who entered service after 2010, the gap in pension benefits between pre- and post-2010 entrants has become excessively wide.

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Pension reform discussions must take into account the fact that, despite the Government Employees Pension being operated considerably more generously than its foreign counterparts, the disparities in pension amounts — across income levels and cohorts defined by year of entry into service — are far too large. As international comparisons make clear, reform that merely adjusts contribution rates and benefit levels in a piecemeal manner will be insufficient to ensure the system's sustainability. More fundamental reform of the Government Employees Pension is required.

There are many obstacles to overcome before successful reform can be achieved. Throughout this process, the experiences of other countries must be fully leveraged. The advice of Sakamoto Jun-ichi, Senior Advisor at the Nomura Research Institute in Japan — who counseled that social consensus should be forged through public deliberation after transparently disclosing all relevant data — is particularly valuable.

https://m.seoul.co.kr/news/editOpinion/world-stories/2014/09/10/20140910022004