[Yun Seok-myeong's Pension Reform Stories] The Lamentable Level of Understanding of the "Automatic Adjustment Mechanism" Among National Assembly Members at the Parliamentary Audit (October 28, 2024)

(Before introducing the Canadian case,

the author wishes to begin by posting a column explaining, using Finland's quasi-automatic adjustment mechanism as an example, why the claim made by the National Pension Service's (NPS) planning executive director — that introducing an automatic adjustment mechanism would reduce only younger cohorts' pensions — can be refuted.)

The term "hollow pension" has even appeared in public discourse surrounding the government's pension reform proposal — specifically in the course of criticizing the automatic adjustment mechanism therein. The mechanism has come under fierce attack primarily from opposition figures: Representative Kang Seon-woo, the Democratic Party of Korea's secretary on the National Assembly's Health and Welfare Committee; Democratic Party Representatives Nam In-soon, Kim Nam-hee, and Jeon Jin-suk; and Representative Kim Seon-min of the Cho Guk Innovation Party.

(Excerpt omitted)

The automatic adjustment mechanism that the author has advocated since the fourth National Pension financial projection in 2018 is one in which the initial pension benefit is reduced.

The proposal is to reduce the pension amount in proportion to the increase in life expectancy directly associated with each insured individual.

The total pension received over a lifetime remains unchanged; the monthly benefit is simply reduced by the amount corresponding to the extended period of receipt resulting from increased longevity — this is the Finnish approach.

If the mandatory contribution age, currently 59, is extended by five years to 64 through labor market reforms such as "post-retirement re-employment," the income replacement rate would rise by more than 10%, meaning that even with the introduction of an automatic adjustment mechanism, pension benefits need not decrease.

Only by introducing the automatic adjustment mechanism in this manner — reducing the initial pension benefit the individual will receive — can intergenerational equity be improved, even if only modestly.

Yet given that the earliest implementation date is 2054, thirty years hence, 'the first baby boom generation such as the author, which was granted a contribution rate of 3% and an income replacement rate of 70%,' will very likely pass away having enjoyed all those benefits without bearing any burden of pain-sharing.

This is why the government's proposed automatic adjustment mechanism has been criticized as an "abdication of responsibility." It is also why, in a recent public opinion survey by the "Youth Action for Pension Reform" group, 31.3% of respondents — and 47% among the MZ generation — expressed a preference for abolishing the National Pension altogether.

Given this state of affairs, watching National Assembly members engage in reflexive opposition for opposition's sake leaves one wondering whether they possess any genuine understanding of the matter.

Under the Moon Jae-in administration, Canada — frequently cited as a case in which "paying more and receiving more" in the National Pension is feasible — has, over the past twenty years, contributed at a rate of 9.9% while being promised an income replacement rate of only 24%.

There is no reason why such a Canada would face fiscal instability. And yet Canada has a statutory provision stipulating that, "if the political sphere takes no action, 50% of the fiscal instability factors will be resolved by compulsion within three years." Further measures are in place three years after that.

https://m.asiatoday.co.kr/kn/view.php?key=20241028010015455