[Enemies of Reform⑤] OECD Consistently Revises Pensions, South Korea Remains Silent

OECD 'Pensions at a Glance 2021' Analysis
89% of 37 Countries Operating Public Pensions Implemented Pension Reforms
Korea Is the Only Country Limiting Back Payment Period to 10 Years Over 3 Years
Japan Raises Retirement Age, Mexico Increases Employer Contributions
Countries Strengthening Benefits Are 'Advanced Pension Countries' That Led Reforms

[Asia Economy Reporter Song Seung-seop] It has been identified that OECD member countries have been strengthening the financial soundness of public pensions over the past three years. This contrasts with South Korea, which has not implemented significant pension reforms despite severe elderly poverty rates and rapid aging. Countries that have expanded pension guarantees further were those that had already carried out intensive pension reforms early on. This is why voices are emerging that the National Pension Service can no longer delay reforms. 'Enemies of Reform'

On the 20th, Asia Economy analyzed the OECD's report "Pensions at a Glance 2021" and found that among the 37 countries operating public pensions, 33 countries (89.1%) implemented pension reforms within the last three years (2019-2021). The only countries that did not carry out any pension reforms were the Czech Republic, Iceland, the United States, and Switzerland.

South Korea was also included among the countries that reformed pensions, but upon closer examination, the changes cannot be seen as fundamental. This is because the financial soundness or guarantee level of pensions was not addressed. In December 2020, the OECD announced that South Korea's National Pension back-payment period, which previously had no specific regulation, was limited to a maximum of 10 years. The back-payment system allows late payment of premiums to add to the contribution period. Since the longer the contribution period, the higher the pension amount, it had been abused as a financial tool by high-income earners. This change is more about preventing side effects than a reform.

Most countries introduced bold reform measures aimed at securing pension soundness. Japan, with a high elderly population ratio, allowed the public pension receipt age to be delayed up to 75 years starting April this year. Previously, it could be deferred only up to 70 years. Additionally, to ensure reasonable pension payments, pension amounts will be recalculated if the beneficiary is working. Even after intensive pension reforms, Japan has been continuing efforts to strengthen soundness for nearly 20 years.

In 2004, the Koizumi administration decided to raise Japan’s Employees’ Pension Insurance (National Pension) contribution rate, which was 13.58%, by 0.354% annually. The 14-year increase policy raised the contribution rate to 18.3%. The income replacement rate also began to be lowered to the 50% range by 2040. A safety mechanism was established to automatically reduce pension payments if the pension finances deteriorate due to economic conditions. Although the Koizumi administration lost the election due to this policy, it is credited with delaying the severe pension depletion crisis.

Most countries that strengthened guarantees are advanced pension countries that underwent 'painful' reforms

Sweden also raised the minimum age for receiving public pensions from 61 to 62 in January 2020. The minimum age for receiving the basic pension is planned to be delayed from 65 to 67 by 2026. The mandatory retirement age was increased from 67 to 68 in 2020, and will be extended to 69 the following year.

Norway completely overhauled survivor benefits within its national insurance system. Norway had a system that paid permanent survivor pensions to those under 67. This was replaced with a time-limited adjustment benefit. The benefit level is fixed to an amount similar to the minimum pension. The previous method of calculating pensions based on the deceased’s income was also discontinued.

Mexico secured finances by raising the employer (company, etc.) pension contribution rate. According to the reform plan, the employer contribution rate, which was 5.15%, will increase to 13.875% from next year until 2030. Meanwhile, the employee contribution rate remains unchanged at 1.125%.

When strengthening guarantees, a method of applying first to the poor or vulnerable groups was used. Germany, in January last year, decided to provide pension reserves to solve pension blind spots. The target is customers with low income who have been enrolled in statutory pensions for a long period (over 33 years). If the monthly salary is below 1,250 euros for a single person or 1,950 euros for a couple, subsidies are provided.

Countries that have strengthened their National Pension more robustly were mostly those that had successfully carried out pension reforms. Finland is a representative example, which introduced the 'expected remaining life expectancy' factor and reduced pensions accordingly as life expectancy increased. Finland also decided to grant pension payment rights to long-term unemployed persons born before 1958. The goal of pension support is to provide income to elderly unemployed people in Finland who have been unemployed for five years.