Reasons Why We Need to Integrate the Operation of the National Pension and the Government Employees Pension!

The OECD's 2022 Pension Review of Korea publication,

noting that only four countries, including Korea, operate the National Pension and the Government Employees Pension separately, recommended integrating the operation of public pensions.

What is the situation in the other countries that operate their public pensions separately?

Germany kept only a small minority — core federal civil servants — as participants in its government employees' pension.

It reclassified a large share of those formerly covered by the government employees' pension as "Public Sector Workers" and excluded them from the scheme.

France, under President Macron, pursued the integration of its public pensions. The great majority of OECD countries other than Korea are already operating an integrated system or pursuing integration.

We should pay attention to the material that Denmark — the very byword for a welfare state — submitted to the EU: its plan is to operate the government employees' pension mainly for police officers and military personnel, and because of this, by 2050 government employees' pension spending as a share of GDP is expected to be negligible.

Japan — the country from which we have learned about pensions — offers even more lessons.

Japan changed its government employees' pension — which for a long time had been operated with the state bearing the full cost — in 1959, to a system in which civil servants bear 50% of the total contribution.

Japan's government employees' pension, whose institutional history — in terms of the contribution burden — can be seen as similar to our own government employees' pension introduced in 1960, went through a continuous process of change and since 2015 has been operated 100% identically to the scheme for ordinary citizens.

Japanese civil servants' severance pay is operated at 100% the same level as the severance pay paid at private-sector workplaces with 50 employees.

Even 100 years from now, in 2123, this Japan will still have one more year's worth of money to pay pensions — that is, enough to last through 2124.

This is a stark contrast with our government employees' and military personnel pensions, into which astronomical sums of deficit-covering subsidies are poured.

Korea, which operates the least sustainable pension system in the world, faces an even more hopeless situation going forward.

Even in this situation, it has become routine to compare one's own pension scheme with other systems rather than reform it.

Even Japan, which maintains a status-based civil service system, operates its pension on an integrated basis. We alone, citing various reasons, insist on the necessity of separate operation.

If, like Japan, we paid the National Pension (Employees' Pension) and severance/retirement pension identically,

and operated the extra 4.5 percentage points that civil servants bear as an additional defined contribution (DC) payment structured so as not to create fiscal instability,

there would be no reason for complaint.

The government employees' pension side has argued that it loses out by receiving less severance pay than National Pension participants,

but that is because the scheme would be operated so as to pay the same severance amount while still paying more overall than National Pension participants receive.

According to the argument they have made all along, there is no reason to oppose integrated operation, because severance pay would be paid identically to the private sector.

If the Government Employees Pension Service and the Private School Teachers' Pension Service are not merged into the National Pension Service, the political backlash that would otherwise be expected would also be smaller.

Groups that have long been critical of integrated operation

will point to the enormous transition costs expected in this case and continue to criticize integrated operation as unrealistic.

They say the system was overhauled, but compared with before the overhaul,

in the short to medium term, costs would be higher — how to make the public understand that has been one of the main arguments they have consistently made.

 

This is a problem that can easily be solved — one only needs to properly explain to the public that “if the integration is done properly,

although transition costs will mean it temporarily costs more,

in the medium to long term it will cost far less than not integrating,

in other words, that far greater savings can be achieved” —

once that is properly explained to the public.