The National Pension Is Not a Magic Wand

[Seoul Sinmun · Open World · October 25, 2012]

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

With the debate over welfare in full swing, the National Pension is receiving renewed attention. The National Pension, which was once the primary object of avoidance due to claims that one would not receive benefits despite paying contributions, has become a focus of attention because it can serve as a substantial source of funds. With accumulated reserves exceeding 380 trillion won, the National Pension has grown into one of the world's three largest pensions, and the size of the fund is projected to increase rapidly for a considerable period. Given this situation, voices calling for the utilization of the National Pension Fund to solve various problems facing our society are rising accordingly.

First, as the problem of low fertility is serious, voices are growing louder to build high-quality childcare facilities using the National Pension Fund to reduce the child-rearing burden on working parents. The underlying logic is that if the burden of childcare is reduced, more children will be born, which will in turn increase the number of National Pension contribution payers, thereby potentially benefiting the National Pension in the long run. While this may seem plausible at first glance, there is a blind spot in the logic in that it fails to consider the fact that since the National Pension is designed with a structure that pays out more than it receives, an increase in the number of payers is negative for the fiscal status of the National Pension unless additional fiscal stabilization measures are taken. Recently, voices have also been rising to utilize the National Pension to alleviate the problem of poverty among older people, who show the highest rate among OECD member countries.

Beyond low fertility and the high elderly poverty rate, various problems that are difficult to solve easily are appearing in our society. A representative example is income polarization caused by jobless growth and the mass production of low-quality jobs. The seriousness of the problem lies in the fact that the deepening income polarization will not be limited to the working period but will continue into old age. Such deepening income polarization across all age groups makes government intervention inevitable.

In this context, pressure to increase fiscal expenditure to achieve social integration and partially meet the rising welfare needs of the people is likely to intensify over time. In such a situation, the argument that we should spend money earmarked for future pension benefits ahead of time to solve current problems seems unfair to future generations. This is because even now, when funding is difficult, arguments are being made to spend future pension benefit funds early; in the future, when the older population surges, there will be even more money that must be spent.

We are already witnessing the unfortunate examples of countries that relied on borrowed funds for the old age of their citizens. Nearby Japan and Southern European countries are suffering severely due to lax management of pension finances. This serves as a lesson that the National Pension must maintain debt-free management despite various temptations. This is especially true in a low-growth, low-fertility, and aging society with a bleak future. This is why it is urgent to build a social consensus on ways to alleviate fiscal instability caused by the "low-contribution, high-benefit" structure and increasing life expectancy, rather than discussing spending the National Pension Fund ahead of time.

The problem of elderly poverty for our generation must be solved with the capabilities of our generation. The National Pension Fund is not money for our generation. Just because a large amount of money is accumulated now does not mean it is money we can spend freely. It is merely the minimum seed money that must be left for our future generations, who will live in a world far more arduous than ours. Instead of touching the fund for future generations, we must ask for the understanding of the current older generation, many of whom are exposed to poverty. We must honestly tell them that even though we desperately want to provide for them, we have no choice but to restrict expenditures as much as possible within available limits to overcome the fierce wave of population aging that looms before us; that we must build the fund more robustly than now to reduce the burden on future generations who will live in a world far bleaker than ours; and that, unfortunately, we can only move in the direction of caring for more older people who need help within the limits of our means.

The National Pension is not a magic wand that produces gold whenever it is tapped. If we fail to respond appropriately now, it could instead become an unwelcome guest that only sends bills for debt. To ensure that the National Pension, which must take responsibility for the old age of the people, does not become a "poverty pension" (窮民年金) that makes the people suffer, it is time for all of us to stay alert and keep a close watch.

Source: Seoul Sinmun (original article)