"If National Pension Reform Is Squandered Again, a Catastrophe That Harms Everyone Will Follow" [Cheongnon Jiksol] (2022)

-At last year's academic conference, you drew significant attention by comparing the National Pension to a "Ponzi scheme."

△ I have heard that many people — including civil servants — were shocked, and that some took offense at what they perceived as a blunt and painful observation.

I was also told of concerns that such language could deepen public distrust of the National Pension. I am not a radical. It would be preferable if moderate arguments could carry the day, but the fiscal situation of the pension system is far too serious to allow for that.

The more pressing problem is that a considerable number of experts — who have a professional obligation to communicate this gravity to the public — have chosen to remain silent.

In good conscience as a scholar, I felt compelled to raise these issues forcefully. Left unaddressed, is this not a time bomb certain to detonate at some point in the future?

- Is that not an exaggeration?

△ Beneficiaries from earlier generations are guaranteed abnormally high rates of return. However, a pension system that operates like a Ponzi scheme cannot be sustainable.

The excessive benefits received by some must be offset by others, and those others are none other than future generations. Future generations become the victims who bear the cost of filling the gap left by the benefits granted to past generations. The language may be provocative, but it is not inaccurate.

- How serious is the fiscal position of the National Pension?

△ The National Pension Fund stood at approximately 950 trillion won (as of end-2021) and will continue to accumulate for a considerable period. Yet the publicly disclosed fund balance represents only the tip of the iceberg above the waterline.

The rapidly growing fund distorts public understanding. It creates the superficial impression that the fiscal situation is sound, but one must look beneath the surface to the submerged portion of the iceberg.

The submerged iceberg refers to implicit liabilities — that is, unfunded pension liabilities: future obligations for which no reserves have been set aside. Based on figures from four years ago, this amount reaches 1,500 trillion won.

While the fund is projected to peak in 2042 and then decline, implicit liabilities will continue to snowball. The contribution rate required merely to prevent fund depletion — without addressing the unfunded liability problem — is 18%, twice the current rate.

That rate would need to rise to 22% by 2030 and to 28% by 2057, when the fund is projected to be depleted. And even these figures are based on an optimistic scenario from four years ago. On current projections, the required rate is expected to exceed 30% by a considerable margin.

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