[Enemies of Reform③] Pension Reform Emerges as a Key Issue... Military Pensions Without Discussion

President Yoon Suk-yeol is delivering a greeting at a luncheon for national merit recipients and veterans' families held on the 17th at the War Memorial in Yongsan-gu, Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Heo Midam] Pension reform has emerged as an urgent issue under the Yoon Seok-yeol administration. There are concerns that in the near future, pension funds may be depleted, leading to a situation where pensions cannot be paid. The need for reform is growing not only for the National Pension but also for the three special occupational pensions for public officials, private school teachers, and military personnel. The public official and private school teacher pensions underwent reform once during the Park Geun-hye administration. However, discussions on military pensions remain stagnant. 'Enemies of Reform'

Unlike other pensions that have been reformed in the direction of 'paying more and receiving less,' military pensions have consistently been postponed. Established in 1963, military pensions have been financially depleted since 1973, just ten years after their introduction, and for about 50 years, the shortfall has been covered by taxes. This year, a deficit of approximately 1.68 trillion won is also expected.

The chronic deficit in military pensions is due to their 'low contribution, high benefit' structure compared to other public pensions. Public official and private school teacher pensions require 18% of monthly income as contributions, but military pensions require only 14% (7% paid by the individual). On the other hand, the benefit amount is higher for military pensions. The payout rate for public official and private school teacher pensions is 1.7%, while it is 1.9% for military pensions. Based on a monthly salary of 1 million won, public official and private school teacher pensions pay 90,000 won and receive 510,000 won, whereas military pensions pay 70,000 won and receive 540,000 won. Applying the same calculation, the National Pension pays 45,000 won and receives 300,000 won. This is why military pensions are criticized as a 'privilege.'

Reform of the public official pension was carried out in 2015 during the Park Geun-hye administration. Although it faced strong public opposition, the government pushed it through. The Ministry of Personnel Management predicted that this would reduce the subsidy needed to cover deficits over the next 70 years by 497 trillion won. At that time, the private school teacher pension was also adjusted to a similar extent.

Although the private school teacher pension was reformed during the Park Geun-hye administration, its financial outlook is not bright. Unlike the public official and military pensions, which have recorded deficits every year, the private school teacher pension had maintained a surplus until recently. However, a deficit is expected starting next year. According to data such as the '2021?2025 National Fiscal Management Plan,' the private school teacher pension will have a surplus of 379.4 billion won this year but will face a deficit of 866.2 billion won in 2023. Ultimately, if reforms are not expedited due to the poor financial situation, the government's burden will inevitably increase.

Some raise issues of equity between the National Pension and the special occupational pensions. As of 2019, the average monthly pension per person was 2.72 million won for military pensions and 2.37 million won for public official pensions, which is less than military pensions. Compared to the National Pension amount of about 400,000 won, this inevitably leads to debates on fairness.

However, it is difficult to simply compare the benefit amounts between the National Pension and special occupational pensions because the contribution rates and enrollment periods differ. For example, the contribution rate for the National Pension is 9% (4.5% paid by the individual), whereas it is 18% for the public official pension. Also, the average employment period for public official pension recipients is 30.2 years (as of 2020), making a simple comparison with the shorter enrollment period of the National Pension inappropriate.

Nevertheless, many point out that the gap in pension amounts between the National Pension and special occupational pensions is excessively large. This can cause relative deprivation among National Pension recipients. Additionally, special occupational pensions were introduced considering lower wages in the past compared to the private sector, compensation for retirement, and the occupational characteristics of performing important public duties, but some argue that they no longer align with current public sentiment.

Experts emphasize the need to resolve the equity issues between the National Pension and special occupational pensions. Professor Kim Taegi of Dankook University's Department of Economics said, "The problem with special occupational pensions is more serious than with the National Pension. Reforming special occupational pensions will inevitably face strong opposition from public officials, private school teachers, and military personnel. Still, it is important to find equity between National Pension subscribers and special occupational pension subscribers."