[Yoon Seok-myeong Column] Pension Reform Must Begin by Listening to the Voices of the Young (May 2024)

According to actuarial projection materials provided to the advisory committee of the National Assembly Special Committee on Pension Reform, of which the author served as a member, the fund depletion date under the proposal of a 30% income replacement rate with a 15% contribution rate is projected to be 2070. By contrast, the fund depletion date under the proposal of a 50% income replacement rate with a 15% contribution rate is 2065.

Despite providing an additional 20 percentage points of income replacement, the fund depletion dates differ by only five years. This illustrates how profoundly misleading it is to assess fiscal sustainability primarily on the basis of the fund depletion date.

According to the Fifth National Pension Financial Projection, the contribution rate required to avoid transferring debt to future generations is 19.8%.

At the time of the National Pension's introduction in 1988, the contribution rate was 3%, and it has remained at 9% throughout the past 26 years. Because contributions have been collected at a level far below what is needed to fund promised benefits, liabilities have accumulated to an enormous scale.

The shortfall between the pension benefits promised and the amounts actually set aside is referred to as the unfunded pension liability. According to estimates by Professor Jeon Young-jun of Hanyang University, a member of the Pension Future Forum, the unfunded liability of the National Pension stood at 1,825 trillion won (80.8% of GDP) as of 2023.

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