The Cruel Fate of the National Pension

[Seoul Sinmun · Open World · July 2, 2012]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA)

Among the systems operated by the state, none seem to have a fate as harsh as that of the National Pension. The "National Welfare Pension," which the government attempted to introduce in 1974, was postponed due to the sudden oil shock and was finally introduced in 1988 under the name of the National Pension. Public perception of the National Pension, which was introduced with great difficulty, could not have been favorable. This was due to complaints asking why the state should interfere with one's old age. Introduced in an unfavorable environment, the National Pension was designed as a structure where benefits exceed contributions, making fiscal instability inevitable. To make matters worse, the low fertility rate, extended life expectancy, and trend of low growth that intensified after the system's introduction deepened the fiscal instability of the National Pension. Eventually, at the end of 1998, ten years after the system was introduced, the pension income replacement rate (benefit rate) was cut from 70% to 60%.

The pains experienced during the process of applying the National Pension to all citizens in 1999 were also significant. This was because arguments that it was premature gained strength, citing the difficulty of income identification for self-employed persons in urban areas who were targets for system expansion. Eventually, as this issue became a source of conflict within the Kim Dae-jung and Kim Jong-pil (DJP) coalition government, the expansion to self-employed persons in urban areas was carried out in April 1999 after the turmoil of the Minister of Health and Welfare and the chairman of the National Pension Service resigning to resolve the situation. Meanwhile, the amendment to the pension law at the end of 1998 introduced the financial projection system to check the fiscal state of the National Pension every five years. According to the results of the financial projection based on the amended pension law, an overhaul of the system—increasing burdens and cutting the pension amount received—appeared inevitable for fiscal stabilization. At the time, there were loud voices claiming that fiscal stabilization measures were not urgent, but this was an inevitable direction for the overhaul in order to dispel the rumors constantly circulating among the public that "even if we pay contributions, the fund will be depleted and we will not receive pensions."

After passing through the Cabinet meeting, the overhaul plan reflecting the results of the financial projection was submitted to the National Assembly in October 2003. The following year, a document circulating on the internet titled "Eight Great Secrets of the National Pension" ignited the sentiments of citizens who were dissatisfied with the National Pension. Although the author was unknown and most of the content was not true, the "Eight Great Secrets of the National Pension" acted as fuel to a fire. Beyond protests against the National Pension, claims were even raised to abolish the system itself. The government rushed to extinguish the fire, but on the internet, there were even voices saying they would vote for a presidential candidate who pledged to abolish the National Pension.

After many twists and turns, the National Pension Act that cut pension amounts passed the National Assembly in July 2007. Because the contribution increase measures originally pursued by the government were not accepted, it was a half-baked reform, and the seeds of fiscal instability still remain. Despite this, the distrust of the public—who experienced two pension reforms haphazardly without knowing the full story—seems to persist. This is because they view with suspicion whether pensions can actually be received and whether the claim that the effective value of pension amounts is guaranteed is true.

In this situation, there is a great fuss everywhere about the arrival of the age of 100-year lives, namely the birth of a new human species called Homo Hundred. In a situation where the working period does not increase, an increase in life expectancy that only extends the period of receiving pensions is nothing but a disaster for the National Pension. To prepare for the aging bomb represented by the age of 100-year lives, further preparations have become inevitable. The time is approaching when the National Pension, which has never heard a kind word since its birth, must once again undergo painful preparations. Coincidentally, 2013 is also the year to announce the results of the third National Pension financial projection.

For the National Pension to be sustainable even in the age of 100-year lives, constant evolution for survival is necessary. Because the National Pension is the last bastion of old-age income security that the general public relies on, it must tell the truth, even if it is unpleasant to the public's ears. That there is no special magic trick for population aging. That the only way is to share the pain by moving toward increasing the level of contributions. This is to avoid a situation like that of Southern Europe, which is experiencing a fiscal crisis after shifting burdens to future generations. In this process, the responsibility for all expected criticisms ultimately belongs to the National Pension. There is no need to be discouraged that its fate is harsh and cruel. To overcome the giant wave of population aging, which humanity is experiencing for the first time, its fate cannot help but be that harsh and cruel.

Source: Seoul Sinmun (original article)