The 'Basic Pension System': Find the Real Stem Cell (November 6, 2006)

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(Recently, the Democratic Party of Korea's Special Committee on Pension Reform held a forum on the direction of Basic Pension reform. The Basic Pension began with the Basic Old-Age Pension, enacted in April 2007. At the time, the political sphere went through considerable growing pains over the introduction of the Basic Old-Age Pension.

Five months before the Basic Old-Age Pension was introduced, OhmyNews planned a series of expert columns supporting the opposition's plan and the government's plan; we are posting one of them on the Pension Future Forum website as a historical record.

It is a column by Dr. Oh Gun-ho, who at the time supported the introduction of the Basic Pension by the then-opposition Democratic Labor Party.)

Is the National Pension truly a welfare system for workers and ordinary citizens? Is it a social insurance program worth our defending?

If one works within the progressive camp, at the very least one ought to defend the National Pension as a pillar of social welfare — yet the more I learn about the National Pension, the more I hesitate over this question than before.

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The fundamental reason I harbor doubts about the National Pension is that far too many ordinary citizens are left in the coverage gaps of the National Pension. Of the 8.4 million non-regular workers, 5.64 million — 67% — are outside workplace-based National Pension coverage, and half of regional (self-employed) subscribers have fallen into the status of exempted non-payers who will be unable to receive a pension later on.

The National Pension offers generous benefits to those who are insured, but confers no benefit whatsoever on those who are not. The uninsured are non-regular workers and small-scale self-employed people who hold a disadvantaged position in the labor market. They are in a situation where they experience the polarization of the labor market while young, and must bear the polarization of pension benefits once old.

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If I had to name one achievement of the past three years of National Pension controversy, it would be this single point: that we have discovered the coverage gaps and begun to search for solutions to them.

The National Pension amendment bill, which had dealt with adjusting the benefit rate and contribution rate for existing subscribers, has turned its attention to measures for resolving the coverage gaps. This is truly a tremendous leap forward. If the National Pension can incorporate support measures for the uninsured, I will go around promoting the National Pension with a light heart.

The people currently left in the coverage gaps are those who cannot afford to pay pension contributions. That is why the answer is a Basic Pension that pays a fixed old-age living benefit to any older person, regardless of whether they were able to pay contributions. The Basic Pension is a system already implemented in many Western welfare states.

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At present, the National Assembly has before it both the government and ruling party's Basic Old-Age Pension bill and the Basic Pension bills of the Grand National Party and the Democratic Labor Party.

The government and ruling party's Basic Old-Age Pension is a plan to pay 70,000 to 100,000 won a month, from 2007, to 60% of those aged 65 and over. If one applies the concept of the pension's benefit rate (benefit amount divided by the average income of subscribers), this amount comes to around the 5% level. In exchange, the National Pension's benefit rate is lowered to 50%.

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By contrast, the opposition's Basic Pension bill includes not only older people but also people with disabilities among those eligible for payment. Its target benefit rate is also higher — 15% under the Democratic Labor Party's bill and 20% under the Grand National Party's bill. In won terms, that comes to 240,000 won and 320,000 won a month, which is tremendous news for those of us who have lived under a fragile system of social welfare.

Likewise, as the Basic Pension is introduced, the National Pension's benefit rate is lowered to 40% under the Democratic Labor Party's bill and to 20% under the Grand National Party's bill. From here, let us carefully examine each plan's approach to the coverage gaps.

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The Democratic Labor Party's plan is a "frugal Basic Pension" that reduces the fiscal requirement to 56% of what the Grand National Party's plan would need. It eases the target benefit rate to 15%, does not pay the Basic Pension to the top 20% of older people by income, and reduces the amount when a couple both receive the Basic Pension at the same time. In its first year of introduction it would cost 3.5 trillion won (2.9 trillion won excluding the disability pension), and by 2030 it would require funding equal to 2.9% of GDP.

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The Democratic Labor Party's Basic Pension plan and fiscal reform plan amount to nothing more than a proposal to bring Korea's abnormally small fiscal scale up to the level of OECD member countries — and even that, over the course of several decades.

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