[Enemies of Reform①] How Populism and Fake News Ruined the National Pension Service

Increasing Deficit and Depletion Timeline of National Pension
Political Circles Lukewarm on Pension Reform Despite Awareness
Changing Stances and Attacking Opponents When in Power
Fake News Like 'You Won't Receive More Pension' Also a Cause

Editor's NoteThe National Pension Service has turned red. The number of elderly receiving pensions is increasing, while the number of workers paying into the system is decreasing. Although the seriousness of the fund depletion was raised long ago, the National Pension system, which collects little but pays out a lot, has remained unchanged for over a decade. The neglected National Pension is blocking the path to a healthy and robust advanced welfare society. The Yoon Seok-yeol administration has drawn the sword to reform the National Pension, but the road ahead is rough. This is because obstacles to pension reform are hidden everywhere. The obstacles that delayed reform are likely to try to derail pension reform again once discussions become serious. This is why it is necessary to carefully examine who the saboteurs of pension reform were. 'Enemies of Reform'

[Asia Economy Reporter Song Seung-seop] The National Pension Service is Korea's representative social insurance. When workers pay a certain insurance premium to the state, they receive it in the form of a pension when they get older. It is a core system designed to protect citizens from old-age poverty, guarantee minimum livelihood, and improve quality of life. For a stable and long-term National Pension system, the Ministry of Health and Welfare has been calculating the pension's finances every five years since 2003.

The Approaching ‘Pension Deficit’

The year in which the National Pension runs a deficit and the year the fund is completely depleted are both accelerating. At the third review in 2013, the deficit year was 2044 and the depletion year was 2060. However, at the fourth review in 2018, the deficit and depletion years were shortened to 2042 and 2057, respectively. The Ministry of Health and Welfare plans to form a ‘Financial Projection Committee’ this month two months earlier than usual to release the results of the fifth review next year, 2023.

Experts expect the deficit and depletion years to be brought forward again in this projection. In 2020, the National Assembly Budget Office predicted the deficit and depletion years to be 2039 and 2055, respectively. This is 2 to 3 years earlier than the government's estimate.

The deterioration of the National Pension's financial soundness is due to the low contribution-high benefit system. The National Pension guarantees a minimum 40% income replacement rate with a 9% contribution rate. This means individuals and companies pay 9% of wages and receive 40% of their average income as a pension. Considering that OECD member countries guarantee a 42.2% income replacement rate with an average contribution rate of 18.4%, this is a seriously unbalanced structure. Japan raised its contribution rate from 13.6% in 2003 to 18.3% in 2017, Germany pays 18.7%, and the United States pays 12.4%.

Nevertheless, since the National Pension system was implemented in 1988, reforms have only occurred twice, in 1998 and 2007. Although calls for pension structure reform emerged across both progressive and conservative camps in the 2000s, except for the Roh Moo-hyun administration, they were repeatedly rejected.

Politics Relying on Populism Ruins Pension Reform

Behind this is the political calculation of politicians seeking votes. Since pension reform is an unpopular policy among the public, it was used as a tool to attack opposing parties attempting to push it forward. For example, during the 2002 presidential election, when leading candidate Lee Hoi-chang proposed "cutting pensions," Roh Moo-hyun opposed it, saying it would become a "pocket money system." Despite Lee's criticism asking "how to stop the pension deficit," former President Roh harshly criticized it as "wrong from the start."

However, after his election, former President Roh reversed his original stance and, along with former Minister of Health and Welfare Yoo Si-min, pursued pension reform. The government proposal included raising the contribution rate from 9% to 15.9% by 2030 and lowering the income replacement rate from 60% to 50%. Then, the opposition party at the time, the Grand National Party, obstructed the reform. In a 2007 parliamentary inquiry, Grand National Party lawmaker Bae Il-do criticized former Minister Yoo, saying, "Pension reform is for securing old-age life," and asked, "Why should the people suffer because of reform?"

Eventually, a bill was passed in 2007 that kept the contribution rate unchanged but lowered the income replacement rate to 40% by 2028. However, during this process, another problem arose when then Grand National Party leader Park Geun-hye's ‘Basic Pension’ plan was accepted. The old-age allowance, previously paid only to vulnerable elderly groups, was changed to a universal welfare system paid to 70% of all elderly. Empowered by populism, the target was expanded and the amount per person reduced, worsening elderly poverty and making income replacement rate adjustment more difficult.

Every presidential election saw the Basic Pension increase by 100,000 won, raising issues of fairness with the National Pension. The current government pledged to raise the Basic Pension from 300,000 won to 400,000 won, which exceeds the average National Pension amount of 550,000 won based on combined couple income (640,000 won). This has led to complaints questioning why people should diligently pay into the National Pension when the free Basic Pension is higher. Politicians chasing only popular policies have made pension reform more difficult.

Fake News Fueling Distrust in the National Pension

Fake news that surfaced every time a National Pension reform plan was proposed is also one of the causes. According to a policy report by the Participatory Government, the ‘anti-movement’ was cited as a factor making pension reform more difficult. The anti-movement began in May 2004 when an article titled ‘8 Secrets of the National Pension’ circulated on the internet, launching an anti-National Pension campaign. Although the content claimed the National Pension was disadvantageous to subscribers, most of it was false. Officials from the Participatory Government explained that this fake news made it harder to pass the pension law amendment bill stalled in the National Assembly at the time.

Critics also point out that fake news continues to spread, hindering smooth reform discussions. Earlier this year, the Korea Economic Research Institute released a study suggesting that people born in the 1990s would not receive a single penny from the National Pension. While fund depletion and not receiving pensions are separate issues, the study expressed them as the same. Considering that many countries pay pensions without funds, this is a misleading statement.

Lee Jae-hoon, Research Director at the Social Public Research Institute, said, "Claims that pensions cannot be received if the fund is depleted are aimed at reducing the National Pension and promoting private pensions," adding, "This kind of rhetoric, which stokes generational conflict and distrust in the system, blocks rational pension reform discussions."