[The Editors' Verdict] Inject State Finances into the National Pension

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The National Pension Financial Projection Expert Committee announced the results of the "5th National Pension Financial Projection" on the 31st. The projection results included basic assumptions as well as scenarios reflecting various future situations. The worst-case scenario is the ‘ultra-low fertility’ scenario with a total fertility rate of 0.98, and considering that last year’s total fertility rate was 0.78, the likelihood of the ‘ultra-low fertility’ scenario becoming a reality is high.

In this case, the National Pension will be depleted by 2050. What happens then? Currently, the pension is paid out by managing the accumulated funds, but once depleted, pension premiums must be collected from economically active people and paid directly to retirees.

According to the projection results, under this pay-as-you-go system, the current premium rate of 18% would surge to 34.3% in 2060, 42.0% in 2070, and 42.1% in 2093. By 2070, individuals would have to pay 21% of their salary as National Pension premiums, and companies would have to pay the same amount. Currently, individuals pay only 9%.

This is just a hypothetical scenario. The Ministry of Health and Welfare, which oversees the National Pension, does not even consider such a pay-as-you-go scenario. They believe pension reform involving either higher contributions or reduced benefits must be implemented beforehand.

But is pension reform feasible? The private advisory committee under the National Assembly’s Special Committee on Pension Reform (Pension Special Committee) submitted a progress report to the National Assembly on the 29th, which summarized the discussions so far in a department-store style rather than presenting a draft pension reform plan. The report only stated that further discussions are needed, without providing concrete figures on how much more citizens should pay in premiums or how much they should receive compared to now (replacement rate).

Sixteen pension experts deliberated for over four months but passed the ball to the political sphere without a conclusion. Can the political sphere make a decision? Asking citizens to pay higher pension premiums would provoke public outrage, so no one wants to bring it up. Is there anyone in our country willing to push pension reform regardless of approval ratings, like French President Macron? Although the Yoon Seok-yeol administration has listed pension reform, along with labor and education reforms, as three major reforms that must be pursued, it has said it will present pension reform measures at the end of its term. In effect, it is passing the responsibility to the next administration.

That is the reality of pension reform. Everyone dislikes and avoids it. What should be done? Everyone knows that pension reform requiring higher contributions must be pursued. To prevent the depletion of the National Pension, the premium rate should be raised from the current 9% to about 15%. This has been discussed since the Park Geun-hye administration.

Is that possible? Can the Yoon Seok-yeol administration push for it? It is highly unlikely that the opposition Democratic Party would step forward to do so.

We cannot just let the National Pension be depleted. Nor can we significantly raise the premium rate from 9% to 15%. Therefore, a compromise must be found. The premium rate should be raised moderately to around 10-12%, and the rest should be covered by government finances.

The reason citizens do not trust the National Pension is that there is no explicit legal provision stating that the government guarantees pension payments. Should we just let the National Pension be depleted because there is no explicit provision? If not, the government should take a more active role by injecting public funds to guarantee pension payments and reassure the public.

Pension reform, which no one wants to properly undertake, must find a compromise. Raise premiums to an appropriate level and cover the rest with government finances. Trillions of won in government funds are injected annually into the civil servant and military pensions. In the long term, civil servant and military pensions should be integrated with the National Pension. Properly adjust the replacement rate and inject government funds into the National Pension as well.

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