[2020 National Settlement] Pension Provisions Surge by 100 Trillion Won in One Year... 'Bottomless Pit' Public Servant and Military Pensions

'2020 Fiscal Year National Settlement Report'
Last Year, Government Employee Pension National Subsidy Reached 20 Trillion Won, Military Pension Financial Input Increased for 5 Consecutive Years

[Asia Economy Reporter Jang Sehee] The pension liabilities, which had increased by only 4.3 trillion won in 2019, have once again risen to over 100 trillion won, surpassing 1,000 trillion won. This is due to the government revising its projections for wage growth and inflation rates. The problem is that the deficit in the civil servant and military pensions, which has already been exposed, is expected to widen further.

According to the Ministry of Economy and Finance on the 6th, the pension liabilities reported in the 2020 fiscal year national settlement report, approved at the Cabinet meeting that day, amounted to 1,044.7 trillion won, an increase of 100.5 trillion won compared to the previous year. This increase is the second largest ever, following the 159.4 trillion won increase in the 2013 fiscal year. Comparing since the pension liability evaluation method changed from ABO (Accumulated Benefit Obligation) to PBO (Projected Benefit Obligation) in 2013, this is effectively the largest increase ever. Pension liabilities represent the present value of future pension payments to beneficiaries of civil servant and military pensions. The pension amount can fluctuate depending on wage growth and consumer price inflation rates.

Recent trends show increases over four years: 752.6 trillion won in 2016, 845.8 trillion won in 2017, 939.9 trillion won in 2018, and 944.2 trillion won in 2019. The increase in 2019 was only about 4 trillion won because long-term fiscal projections are made every five years. The Ministry of Economy and Finance explained that the inflation rate was updated from 2.1% to 2.0%, and the wage increase rate from 5.3% to 3.9%.

A decrease in the discount rate from 2.99% to 2.66% added 70.9 trillion won, and the present value increased by 15.5 trillion won due to retirement dates being one fiscal year closer than the previous year, offsetting all financial factors. Other factors such as increased service periods (32.7 trillion won) and decreased pension payments to beneficiaries (-18.6 trillion won) also played a role.

The government explains that these are hypothetical figures used to calculate future burdens, but the civil servant and military pensions are already running deficits.

According to the Ministry of Personnel Management and the Ministry of National Defense, the deficits in civil servant and military pensions have been increasing recently. The government subsidy for civil servant pensions, which was only 2.3 trillion won in 2016, increased by 200 billion won to 2.5 trillion won last year. Military pension subsidies have also increased for five consecutive years. The military pension government subsidies were ▲1.3665 trillion won in 2016 ▲1.4523 trillion won in 2017 ▲1.51 trillion won in 2018 ▲1.574 trillion won in 2019 ▲1.5779 trillion won in 2020.

Experts agree that pension reform is urgently needed to ensure the financial soundness of civil servant and military pensions. This means there are limits to paying pensions through government subsidies. Professor Sung Tae-yoon of Yonsei University’s Department of Economics emphasized, "Civil servant and military pensions should be considered practically depleted." He added, "It is not right to cover all pension income shortfalls with government funds. Ultimately, it is time for a comprehensive restructuring, either by collecting more or paying less."