Yeo Pushes Pension Reform for 'Pay More, Receive More'... Kim Seong-ju Aims for Minimum 1 Million Won from National Pension + Basic Pension (Summary)

Instead of 'Pay More, Receive Less' Pension Reform, Structural Reform Needed
Establish a Multi-layered Income Security System Alongside National Pension and Basic Pension
"If the Public's Elderly Poverty Situation Is Objectively Viewed, Structural Reform Will Be Undertaken"

Kim Sung-joo, Member of the Democratic Party of Korea./Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Naju-seok] "There is a perception that Yoon Seok-yeol's style of pension reform is only about 'paying more and receiving less,' but there is also reform that involves 'paying more and receiving more.' It is possible to strengthen old-age income security while stabilizing finances."

Kim Seong-ju, the opposition party secretary of the National Assembly's Special Committee on Pension Reform and a member of the Democratic Party of Korea, stated in an interview with Asia Economy on the 15th that regarding pension reform, a national issue, "We need to go beyond 'parametric reform' focused on financial stability and pursue 'structural reform' that also aims at securing old-age income." Kim participated in the 2015 civil servant pension reform and served as the chairman of the National Pension Service under the Moon Jae-in administration, making him a pension expert in politics.

On the same day, Kim held an internal discussion on pension reform issues at the National Assembly with Democratic Party members from the Pension Special Committee and the Welfare Committee. This was initiated as the National Assembly's Pension Special Committee had been inactive.

Kim emphasized, "It is necessary to show the public the reality of old-age poverty in our country," and argued, "The public should be provided with sufficient and objective data on how to spend their old age comfortably and securely to make informed decisions." Through this, "We should show current subscribers how much pension they can receive based on their contributions, and if they find it difficult to live on that, they should be able to choose whether to secure old-age protection through a state-run pension system like the National Pension or through private personal pensions based on private contracts." He added, "Currently, no such explanation is given; instead, people are threatened with statements like 'the finances will be depleted in a few years, so pay more premiums' or 'aren't you sorry for your children?' Even if people want to pay more, it feels burdensome. The National Assembly should play a role in properly persuading the public."

Kim also stressed the need to consider retirement pensions. He said, "A multi-layered income security system should include the basic pension and the National Pension as a foundation, and retirement pensions must be included as well," adding, "It is a bipartisan agreement in the National Assembly's Pension Special Committee to discuss the basic pension, and it is necessary to further include retirement pensions in the committee's discussions."

He noted, "Currently, the basic pension is 300,000 won, and the average National Pension benefit is 570,000 won. Even combined, they do not reach 1 million won," and said, "If these two are well combined to secure a state-run pension system providing at least 1 million won, a minimum standard of living is possible."

Below is a Q&A.

- The Pension Reform Special Committee has been established but has not been active.

▲ Compared to President Yoon Seok-yeol or Ahn Cheol-soo of the People Power Party, who have publicly pledged pension reform, the government and ruling party's will does not seem strong. Although the National Assembly formed the Pension Special Committee, it has never convened since its formation. Despite words, the will appears weak.

Initially, during the presidential campaign or the transition committee period, there was will, but when asked during government questioning sessions, the response was, 'We will not establish a government body but substitute it with the National Assembly's special committee,' and 'Once the government proposal is ready, it will be submitted to the National Assembly.' This suggests the government's will has weakened. It is not right for the opposition to wait for the ruling party's position before expressing theirs just because the ruling party is passive. If the ruling party is passive, the opposition should take the lead in raising the issue of pension reform and guiding social discussion.

- When pension reform is mentioned, 'courage' is often talked about. Is pension reform really an issue that requires 'courage'?

▲ Historically, pensions were first introduced in the late 19th century, in 1889 during Germany's Bismarck era. The purpose was to guarantee workers' old age and contribute to system stability. However, every time pension reform was attempted, it involved raising contribution rates or lowering benefits from a financial perspective, which met with strong resistance. Therefore, parties that first raised pension reform often ignored it in the next election. In Europe, parties that led pension reforms in countries like Germany and Sweden all collapsed. As a result, an unwritten rule has developed that pension reform issues are not election issues. After elections, the majority party traditionally collaborates with other parties to initiate pension system reforms. The Kim Dae-jung and Roh Moo-hyun administrations raised pension contribution rates or lowered income replacement rates twice, and were heavily criticized. The opposition at the time appeared cooperative but opposed negotiations, making it difficult for the government and ruling party. Thus, unless there is an agreement to not politicize pension reform and to reform the pension system for the future regardless of political gains or losses, it is difficult to start reform.

- What is your vision for pension reform?

▲ When pension reform is mentioned, people think of paying more and receiving less, but the opposite is also possible. You can raise contribution rates and increase benefits. For example, Canada's CPP, similar to the National Pension, raised its contribution rate from 9.9% by 2 percentage points and increased the income replacement rate from 25% to 33.33%. The burden increased, but so did the benefits.

Past administrations like Lee Myung-bak and Park Geun-hye viewed pension reform from a financial perspective, aiming to delay fund depletion by raising premiums. This approach is bearable for middle-class or higher-income groups but causes low-income groups to refuse to join if premiums rise. This leads to an increase in old-age poverty. For this reason, I advocate strengthening public pensions rather than promoting private pensions.

The purpose of the pension system is to strengthen old-age income security. If reform weakens old-age income security while aiming for financial stability by making people pay more and receive less, people will withdraw. This will cause retirees to exhaust severance pay and start cafes or restaurants, fail, and fall into old-age poverty repeatedly.

- If you want to strengthen old-age income, how would you do it?

▲ Pension terminology is complex, but there is a term called income replacement rate. Currently, the contribution rate is 9%, and the target income replacement rate is 40%. This means that after 40 years of pension contributions, the pension amount received is 40% of the average income earned three years before retirement. For example, if I earned 4 million won, I would receive 1.6 million won as a pension. However, this requires paying National Pension contributions without interruption for 40 years, assuming starting work at age 20 and retiring at 60. Considering most people start working around 30, few reach the full 40% income replacement rate. Therefore, I argue that the income replacement rate should be raised to 50% to secure old-age income.

Pensions are broadly divided into tax-based pension systems and social insurance pensions. The basic pension, funded by taxes, is a tax-based pension system, while the National Pension requires paying a portion of income as premiums and receiving pensions accordingly. Currently, the basic pension is 300,000 won, and the average National Pension benefit is about 570,000 won. Even combined, they do not reach 1 million won. To increase the basic pension, more taxes must be collected. If that is not feasible, the National Pension must be the focus, requiring higher premiums. Personally, I believe that by combining the basic pension and National Pension well to secure at least 1 million won through a state-run public pension system, a minimum standard of living is achievable.

- Why should pension reform be expedited?

▲ The government formed a Pension Estimation Committee, which plans to release a draft in March next year, announce a pension reform plan in August, and submit it to the National Assembly. However, with the general election scheduled for April the year after next, how do you think the National Assembly will act? Ultimately, they will not act. While estimations proceed, pension reform discussions should be held now in the National Assembly.

- There are also reform proposals to merge civil servant pensions with the National Pension.

▲ I want to ask how to integrate them. The National Pension contribution rate is 9%, while the civil servant pension is 18%. Will the National Pension contribution rate be raised to 18%, or will the civil servant pension rate be lowered to 9%? They have operated different systems. Either civil servants pay more and receive more, or the National Pension is lowered so civil servants receive benefits at the National Pension level. A standard must be established. Moreover, the National Pension is in surplus, but the civil servant pension is in deficit. If merged, the government would cover the civil servant pension deficit, burdening the public. Would the public agree to this? Discussing integration based on civil servant pension benefits without such considerations is populism.

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