[2019 National Settlement] Sharp Decline in Pension Liability Growth 'Controversy Over Manipulation'

Annual increase of around 90 trillion won recorded... sharply dropped to 4.3 trillion won last year

Due to changes in wage and inflation rate standards

Some point out 'burden of increasing public officials'

[Sejong=Asia Economy Reporter Joo Sang-don] Last year, the increase in pension liabilities sharply slowed down. This is due to changes in the projected inflation and wage growth rates applied during calculation. Criticism has emerged that this is a 'manipulative standard change' intended to ease the burden of the excessive surge on President Moon Jae-in's election pledge to increase public officials by 174,000 by 2022.

According to the '2019 Fiscal Year National Settlement Report' deliberated and approved by the government at the Cabinet meeting on the 7th, pension liabilities stood at 944.2 trillion won, an increase of 4.3 trillion won (0.5%) compared to the previous year (939.9 trillion won).

Pension liabilities are estimated amounts that the state must pay in the future to current and retired public officials as pensions, calculated at the present time. Pension liabilities are mostly covered by funds composed of contributions from current employees (public officials) and employer (state) contributions. However, if the reserves are insufficient to cover payments, the government annually supports the shortfall from general funds. According to the National Assembly Budget Office's '2019-2028 Financial Outlook for Eight Major Social Insurances,' the state subsidy for deficits in public official and military pensions reached a provisional 3.8 trillion won last year. It is expected to increase to 7.5 trillion won by 2028. Although this is a different concept from national debt, which is the country's debt, the increase in pension liabilities means a greater burden on the public.

Until now, the debt of public official and military pensions has shown an annual surge of about 100 trillion won. The increase amounts were ▲16.3 trillion won in 2015 ▲92.7 trillion won in 2016 ▲93.2 trillion won in 2017 ▲94.1 trillion won in 2018. Because of this, pension liabilities were expected to exceed 1,000 trillion won last year. However, the actual increase last year was only 4.3 trillion won. This is because the projected wage and inflation growth rates applied in calculating pension liabilities were lowered.

Previously, the government applied the wage and inflation growth rate projections from the 2015 Long-term Fiscal Outlook until the 2018 fiscal year. The inflation rate for 2021-2030 was projected at 2.4-2.7%, and wage increase rates at 5.0-5.2%. However, from the 2019 fiscal year settlement, the Ministry of Economy and Finance applied the wage and inflation growth rate projections from the 2020 Long-term Fiscal Outlook to calculate pension liabilities. If the 2015 Long-term Fiscal Outlook's wage and inflation growth rates were applied, pension liabilities would amount to 1,040.4 trillion won.

The Ministry of Economy and Finance stated that the previous projections did not reflect recent realities and needed to be updated. According to the ministry, the inflation rate projections versus actuals were ▲2016: 2.5% projected, 1.0% actual ▲2017: 2.5% projected, 1.9% actual ▲2018: 2.5% projected, 1.5% actual ▲2019: 2.5% projected, 0.4% actual. Kim Seon-gil, head of the Ministry of Economy and Finance's Accounting and Settlement Division, explained, "Until 2018, we applied the 2015 projections, but since they were old and did not reflect recent realities, it was necessary to update them. Since the long-term fiscal outlook has been used since the 2015 settlement, this is the first time that the 2020 Long-term Fiscal Outlook figures were used in the 2019 national settlement."

The Ministry of Economy and Finance did not disclose the wage and inflation growth rate projections from the 2020 Long-term Fiscal Outlook applied this time. The projections are finalized but will be disclosed when the 2021 budget proposal is submitted to the National Assembly. A ministry official said, "The pension accounting guidelines require using the optimal process based on market expectations and recent price indices, so we changed it accordingly and consulted accounting experts. There are criticisms that this standard change is manipulation or a trick, but that is inappropriate."

This content was produced with the assistance of AI translation services.