(A Position on the Government Employees Pension's Accrued Liability Differing from the Pension Future Forum's, Hankyoreh Report, April 2019) [Because] Misunderstandings and Truths About the Accrued Pension Liability (Posted October 4, 2026)

Lee Seung-cheol
Director-General for Fiscal Management, Ministry of Economy and Finance

Since the national closing of accounts was announced on the 2nd, of all the financial statements included in the national settlement report, such as revenues and expenditures, the fiscal balance, and national debt, the accrued pension liability alone has drawn a great deal of controversy. Some even present it as an immediate warning sign for national finances, claiming that because the accrued pension liability, a liability on the financial statements, is entirely the nation's debt, it must be repaid with the public's taxes. This misunderstands the nature of the accrued pension liability, and as a wasteful debate fixated solely on its size, it defeats the purpose for which accrual accounting was introduced.

The accrued pension liability is an unfamiliar and difficult term to begin with. The process of calculating it is even more complex. The pension amounts to be paid over a long period are estimated and converted into present value. It is calculated in order to show, taking into account the potential for future fiscal expenditure, the total pension amount to be paid in return for work. It therefore does not take future revenues into account. But is this entire amount a debt that must be borne by the public's taxes? Most pension payments are covered by the employee contributions paid by civil servants and the employer contributions paid by the state as employer. They can also be covered by the investment returns of the Government Employees Pension Fund. Since the accrued pension liability is not a debt that the public must bear entirely without any funding source, the misinformation that leads people to think of it as a per-capita debt of every citizen must not be amplified and reproduced. As a simple example, consider the cost of raising a child. According to statistics published by a private research institute, the total cost of raising one child through college graduation approaches 400 million won. If I have one child, is that 400 million won a debt I must repay immediately, and is it dangerous? No. It is not a debt to be repaid immediately but an amount estimated in consideration of the future burden. Most of the total child-rearing cost will be covered by the money I earn in the future. In addition, the total child-rearing cost may change if the child works part-time, receives a scholarship, or does not go to college. Why, then, do we need to know an estimated amount that does not have to be paid immediately? It enables "decisions" such as anticipating how much of one's monthly income will be spent on child-rearing and cutting back on spending, for example by postponing a family trip or the purchase of a new car, to prepare for future expenditures. Knowing the total amount required in this way helps with present decisions. Looking at the whole picture, one can make judgments about current consumption levels and the accumulation of assets. The same is true of the accrued pension liability. It is not a debt to be repaid immediately; it shows the future burden that must be taken into account in making present decisions.

The accrued pension liability is a liability on the national financial statements, and its origins go back to the 1997 foreign exchange crisis. At the time, the International Monetary Fund (IMF) diagnosed problems with the management and accounting transparency of private companies as the main cause, and it recommended establishing international accounting standards for the private sector and improving the government accounting system; through this, accrual accounting was introduced to the public sector. The accrued pension liability was also introduced as part of this accrual accounting, and accrual accounting in the public sector is a system adopted by the majority of the countries of the Organisation for Economic Co-operation and Development (OECD) (25 countries).

With the introduction of accrual accounting, the government came to recognize the value of national infrastructure such as roads, airports, and ports, and, by calculating the accrued pension liability, to recognize the importance of latent liabilities, so that it can now manage the nation's assets and liabilities comprehensively and over the long term. It is now time to move beyond the wasteful debt controversy repeated every year, to understand the nature of the accrued pension liability, and to discuss how to make better use of accrual-basis financial information.

Every year, through the financial statements included in the national closing of accounts, the government transparently discloses to the public the nation's financial position and operating results. Going forward, the various information in the national financial statements needs to be used for fiscal analysis, such as analysis of national fiscal liquidity, analysis of the growth rate of national assets, and the debt-to-asset ratio, and for evaluating program performance through cost information. I hope this will develop into a forum for productive discussion, with more active research by private experts toward this end.

https://n.news.naver.com/article/028/0002449750?sid=110