'National-Civil Servant and Military Personnel' Pension Integration Talks Rekindled?

Special Occupational Pensions Deficit Snowballing... Trillions of Won in Annual Budget Support

[Asia Economy Reporter Joo Sang-don] Attention is focused on whether discussions about integrating social security pensions such as the civil servant pension and the National Pension will reignite following the sharp decline in military pension returns. Due to low birth rates and an aging population, expenditures are rapidly increasing every year while fund revenues are decreasing, leading to growing calls for unification to achieve economies of scale. In particular, these pensions receive trillions of won annually from the national budget to cover deficits, and considering the financial red flags triggered by the COVID-19 pandemic, some believe it is becoming increasingly difficult to postpone these discussions any longer.

Hwang Se-woon, a research fellow at the Korea Capital Market Institute, said in a phone interview with Asia Economy on the 8th, "Special occupational pensions such as those for civil servants and military personnel have high deficit levels, and since the government covers these deficits, it is unsustainable," adding, "It is appropriate to integrate them with the National Pension in the long term."

The demand for integration between the National Pension and special occupational pensions like the civil servant and military pensions is an old issue. Dissatisfaction over covering pension deficits with taxpayers' money and the need to ensure fairness with the National Pension were discussed during civil servant pension reforms in 2009 and 2015. However, these efforts repeatedly failed. Last year, Kim Jong-cheol, leader of the Justice Party, declared, "We will break the taboo of progressivism," and called for integrating civil servant, private school, and military pensions with the National Pension. Yoo Seung-min, former member of the United Future Party (now People Power Party), said he "fully agreed," and Im E-ja, a People Power Party lawmaker, also brought this issue to public discussion in the National Assembly.

The perceived necessity of pension integration relates to its effectiveness in improving returns and the rapidly increasing subsidies used to cover pension deficits. Last year, the National Pension's return rate was 11.3%, double that of the military pension. The government's deficit coverage exceeded 1 trillion won last year. The National Assembly Budget Office reported in July last year that the government subsidy for the civil servant pension reached 1.2611 trillion won. It projected this amount to increase to 8.2011 trillion won by 2030 and 11.6398 trillion won by 2060. The military pension faces a similar situation.

Professor Kim Bong-hwan of Seoul National University forecasted in November last year that the pension liabilities for civil servant and military pensions, which were 944.2 trillion won in 2019, would exceed 1,000 trillion won in 2020. Pension liabilities represent the present value of future pension payments owed to beneficiaries of civil servant and military pensions. Ultimately, pension deficits impose a significant burden on future generations as a whole.

Of course, there are strong opposing voices. Concerns arise that integrating pensions that record deficits every year could only exacerbate financial instability. This is a major obstacle to proper discussions. Unlike the National Pension, special occupational pensions include not only retirement income security but also elements of severance pay and employment insurance. The argument is that integrating them with the National Pension without considering these factors would inevitably reduce benefit amounts. Hwang explained, "To turn a surplus, at least one of either paying more or receiving less must happen, but both face strong resistance, making it difficult."

Lee Tae-seok, a research fellow at the Korea Development Institute (KDI) Public Economics Research Department, advised, "While integration is necessary, discussions are not yet mature," adding, "We need to start with theoretical discussions."

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