[Special Feature | Government Employees Pension Reform] Already 515 Trillion Won in Debt, “Major Reform” Unavoidable — Revised (September 5, 2014)

“Pay More, Receive Less” Differs From the Facts

There were three reform rounds — in 1995, 2000, and 2009 — but after each reform the Government Employees Pension became even more tangled and complex. 

Even though there was an additional reform in 2009, the reality of our Government Employees Pension is that even doubling the 7% contribution rate borne by the insured themselves would make it difficult to guarantee long-term fiscal stability.

Despite this situation, in 2000 the contribution rate was raised by a mere 1 percentage point, and a provision was created under which the state guarantees payment of any deficit arising in the future. 

This is the background against which criticism has been raised that the 2000 reform was “not reform but deterioration,” and it is a case that starkly reveals the limits of a reform led by civil servants themselves.

Let us look at the press release headline for the 2009 reform.

“By raising contributions by 27% and cutting pension amounts by up to 25%, we project that the pension deficit subsidy will decrease by 51% below the current level over the next five years.”(September 2008, Ministry of Public Administration and Security press release)

Contrary to this explanation, since the reform the scale of the deficit has been snowballing. Let us examine what lies behind this.

Contrary to the explanation that pensions were cut drastically, pensions were not cut for those with 10 or more years of service.(“At the time of the reform, for those with 10 or more years of continuous service, there will be no cut to the initial pension amount,” <Government Employees Pension: 50-Year History>, published by the Ministry of Public Administration and Security)

Despite the reform, it even became possible for long-tenured employees to end up receiving a larger pension. 

This is because, starting in 2010, the “monthly compensation amount” standard — under which contributions were paid and pensions received based only on base pay excluding allowances — was changed to the “taxable income” standard, which includes allowances.

Incidentally, the “monthly compensation amount” is only 65% of “taxable income.” To elaborate, until 2009 contributions were paid based on the “monthly compensation amount” standard, which excludes various allowances, 

starting in 2010 the standard changed to “taxable income,” which includes various allowances. 

For an employee with 20 years of service, although they paid 35% less in contributions over the past 20 years under the “monthly compensation amount” standard, once the newly changed “taxable income” standard is applied, the possibility has arisen that they could receive up to 54% more pension for their past years of contribution.

This is a clear-cut example showing the gap between how the reform was publicized and how it was actually applied.

The claim that the Government Employees Pension amount is larger because contributions are higher than under the National Pension has also been exaggerated to a considerable extent.

The Government Employees Pension contribution rate rose in stages from 2.3% in 1960 to 8.5% by 2001. The problem is that the 8.5% contribution rate applied through 2009 was based on the “monthly compensation amount” standard.

If converted to the “taxable income” standard applied to National Pension subscribers, the Government Employees Pension contribution rate of 8.5% falls to 5.5%. 

If the 7.5% self-borne share of the Government Employees Pension contribution paid through 2000 is converted to the National Pension standard, it comes to only 4.9%.

It is only in recent years that Government Employees Pension subscribers have paid more than the 4.5% self-borne share (9% total) paid by National Pension subscribers. 

Compared with the 54-year history of the Government Employees Pension system, when set against National Pension subscribers who have been paying 4.5% since the point 10 years after the system’s introduction, it turns out that Government Employees Pension subscribers actually paid less for a considerable period.

https://n.news.naver.com/article/033/0000028193?sid=102