hankyoreh

By Lee Yoo-jin, staff reporter

The presidential transition committee for President-elect Park Geun-hye is pushing to use pension premiums to provide some of the necessary funds to implement her election pledge to pay a basic pension of 200,000 won (US$189) to all senior citizens over 65, sources reported on Jan. 11.

According to accounts from sources linked to the committee and the ruling Saenuri Party (NFP), the committee is currently mulling over a plan that would tap into pension premium revenues for around 20% to 30% of the addition 7 trillion won (US$6.6 billion) per year needed to pay a universal basic pension.

This would mean a total of 2.1 trillion won (US$1.99 billion) in premiums being put into the basic pension if the national pension distribution ratio is set at 30%, or about 7% to 8% of pension premium revenues for one year.

However, sources also said there are no plans to touch the National Pension Service's (NPS) savings, which currently amount to around 400 trillion won (US$378 billion).

During her election campaign, Park pledged to provide a basic pension of 200,000 won to all senior citizens over 65 as of 2014, regardless of their income. Currently, 66% of people over 65 are receiving a basic old age pension of 97,100 won (US$92) per month.

The Saenuri Party's political opponents and civic groups have consistently demanded an expansion of the old-age pension. 
The basic old age pension was introduced amid arguments that the national pension alone was insufficient to guarantee a post-retirement income after its income replacement rate (pension payouts as a percentage of average lifetime monthly income) dropped as a result of 2007 pension reforms.

But critics blasted the idea of using national pension funds rather than state funds to increase the basic old age pension, which would pass the burden on to pension premium payers.

In a Jan. 11 statement, the NPS chapter of the Korean Public & Social Services and Transportation Workers' Union, part of the Korean Confederation of Trade Unions, argued that it was a "logical contradiction" to propose using pension funds rather than taxes after the income replacement rate dropped from 60% to 40% in 2007 amid what it called "scare tactics" from then-opposition Grand National Party (the NFP's precedessor), which predicted frightening scenarios of depleted funds.

Predictions have held that national pension funds will reach 246.5 trillion won (US$233.3 billion) in 2043 but drop sharply thereafter, becoming exhausted completely between 2047 and 2060. Observers are also decrying the use of national pension premiums for the basic pension because of fairness concerns with special pensions, including those for public servants, employees at private education institutions, and military personnel.


Attorney Lee Chan-jin, who heads the social welfare committee for the NGO People's Solidarity for Participatory Democracy, called the plan "a change for the worse that lowers the income replacement rate and places the burden solely on the national pension."

Lee also said, “The plan could be destined to be met with popular resistance."

Yun Seok-myung, a researcher at the Korea Institute for Health and Social Affairs, said the transition committee's idea "removes the bottom brick to support the top brick."

"This could end up placing an even larger burden on future generations," Yun said.

Some experts expressed support for the idea. Kim Yeon-myung, dean of the Chung-Ang University Graduate School of Social Development, voiced his support for the committee's plan, explaining that the relative poverty rate for South Korea's elderly is currently triple the OECD average, while the NPS had the world's largest savings as of late 2011, representing around 29.2% of the country's GDP.

"There needs to be a reexamination of our entire approach to fund management and the pension system," he said.

Park Won-suk, a lawmaker for the Progressive Justice Party, said it made little sense to ignore the issue of poverty among the elderly when the NPS has nearly 400 trillion won in savings.

"The transition committee's proposal is meaningful," he said, "but it could also breed distrust in the national pension."

Park advised making macro-level structural changes through the National Assembly's special committee on pension reforms.

Please direct questions or comments to [englishhani@hani.co.kr]