(May 2015 JoongAng Ilbo Column) The Deeply Flawed Government Employees Pension Agreement Cannot Stand as It Is (December 12, 2025)

(On May 3, 2015,

the day after the agreement reached in the political sphere

on overhauling the Government Employees Pension

was announced,

at the request of the JoongAng Ilbo,

Yun Suk-myung, Research Fellow at

the Korea Institute for Health and Social Affairs,

wrote this op-ed.

Anyone who reads this

and grasps its substance properly

will readily understand why!

in 2025 alone

the Government Employees Pension's

deficit subsidy

is reaching 10 trillion won,

and why it will grow

larger still

in the years ahead.)

After the Saenuri Party introduced its Government Employees Pension reform bill last November, four months of discussion produced a reform agreement.

It is of no small significance that the agreement was drawn up with the participation of Government Employees Pension stakeholders, members of the National Assembly representing the public will, and experts in the relevant fields.

Yet experts in the relevant fields and the public alike are uneasy as they look at this agreement. The reform's substance falls short, and it went so far as to tamper with the National Pension's accrual rate.

　That another Government Employees Pension reform became unavoidable less than five years after the 2009 reform is because the three previous reforms were what is commonly called reform in name only.

The 2000 reform earned that label because of the deficit-subsidy clause making the state responsible for the Government Employees Pension's deficit, and the 2009 reform because it did not cut a single won from the pensions of those with ten or more years of service, who made up more than 50% of all civil servants.

It is because the reforms pursued were ones of flash-in-the-pan effect, achieved through contribution increases, rather than the benefit cuts that deliver large fiscal savings.

　This latest reform, pursued with enthusiasm, likewise draws many negative assessments.

That is because the core of the reform is a contribution increase (28%) rather than a benefit cut (10%).

And what is more, because benefits are cut in stages over twenty years, the degree of burden-sharing asked of long-serving civil servants in their mid-forties and above, who escaped the blade of the 2009 reform, is once again not great.

The pension eligibility age is also said to be pushed back, but because that too takes place gradually over ten years, long-serving civil servants lose very little.

Whether it is acceptable to carry out reform in this fashion must be examined.

First of all, the analytical indicators that confuse the general public and civil servants alike need to be sorted out clearly.

That is because, in analyzing the fiscal effects of the Government Employees Pension, the pension accrual rate that converts the private sector's 8.3% severance pay into pension terms is complicating the matter.

In this round of reform discussions, severance pay (8.3%) was converted into an accrual rate of 0.65 (equivalent to an income replacement rate of 21.45% for 33 years of contributions and 26% for 40 years) in order to analyze the mathematical effects.

Compared with the private sector, which ordinarily applies an accrual rate of 0.375 to 0.5, the Government Employees Pension credits that very same 8.3% at anywhere from 30% to as much as 73% more generously than the National Pension does, and assesses the balance between contributions and benefits on that basis.

This is also the background against which the benefit accrual rate of 1.50 put forward by the Ministry of Personnel Management and the 1.65 of the so-called Kim Yong-ha plan are alike described as achieving a balance between contributions and benefits.

It is a phenomenon that arises because the government's baseline proposal converts the accrual rate stingily,

while the Kim Yong-ha plan converts it generously.

The starting point of this round of Government Employees Pension reform was the call for a structural reform that would allow transparent comparison between schemes, so as to put an end to this phenomenon, which recurs with every Government Employees Pension reform.

　On the premise that the accrual rate is lowered to 1.7% in a single step from next year and that the government assumes the entire 524 trillion won of unfunded pension liability already incurred, a contribution rate of at least 27% must be borne if the burden is not to be passed on to future generations after the reform.

Because benefits are cut not in a single step but over twenty years, the contribution rate needed to achieve a balance between contributions and benefits will be higher still than 27%; yet even after the reform only 18% is contributed, so a deficit of at least around 10 percentage points will accumulate every year.

Germany's federal Government Employees Pension, with an accrual rate of 1.79, has operated on a fully funded basis for those appointed from 2007 onward, requiring a contribution rate of 35%.

By contrast, adding to an accrual rate of 1.7 the 0.25% obtained by converting the retirement allowance (39%) into an accrual rate yields a post-reform accrual rate of 1.95% for Korea's Government Employees Pension.

Operating under conditions comparable to those in Germany would require a contribution rate of 38%. And this is despite the state assuming full responsibility for the 524 trillion won of unfunded liability already incurred.

Japan's Government Employees Pension currently pays an accrual rate of 1.57, yet it will be cut to 1.05–1.28 going forward while the contribution rate is raised to 18.3%. And this even though 50% of the financing for the Basic Pension, which accounts for roughly half of the accrual rate, is raised through taxes.

Such an international comparison is an objective indicator of just how serious the fiscal instability of Korea's Government Employees Pension is.

In 2000, immediately after the International Monetary Fund (IMF) economic crisis, the World Bank called for the Government Employees Pension's accrual rate to be brought into line with that of the National Pension, which then stood at 1.5 (currently 1.16).

Yet even in 2035, twenty years from now, the Government Employees Pension's accrual rate will still be 1.7. Can a reform of this kind be called a successful reform?

　It is also a problem that, having failed to reform the Government Employees Pension properly, the exercise has enlarged the worries surrounding the National Pension.

That is because the working group discussing Government Employees Pension reform, of all bodies, abruptly overturned the terms of the National Pension reform that had been agreed only with great difficulty over four years, from October 2003 to July 2007.

There was no social consensus on securing the funds that raising the National Pension's income replacement rate by 10 percentage points would require.

Raising the income replacement rate by 10% requires the contribution rate to be increased by at least 6 percentage points above its present level.

Since that is a steep increase amounting to 67% of the current National Pension contribution rate, an issue on which serious controversy is to be expected in terms of public acceptability and fiscal stabilization was settled far too easily, and criticism on that count appears difficult to avoid.

　This agreement is open to considerable criticism both in terms of achieving fiscal stabilization and in terms of equity between incumbent and newly appointed civil servants.

If these aspects are not taken into account, its fiscal and political sustainability is expected to fall markedly.

The problematic parts of an agreement that appears to do more harm than good need to be gone over carefully, one by one, before it is written into law.

Yun Suk-myung, Research Fellow, Korea Institute for Health and Social Affairs (KIHASA); Adjunct Professor, Department of Economics, Korea University

https://www.joongang.co.kr/article/17726588