['Money-Eating Hippo' Public Pension] Increase in Enlisted Soldiers' Allowances and Expansion of Officers... Military Pension State Subsidy 'Snowballing'

2060 Conservation Fund 10 Trillion Won... Burden Increases if 2 Million Won Monthly Salary Pledge for Enlisted Soldiers is Kept
Missed Reform Timing in 2015... Budget Office "Financial Burden Will Increase"

[Asia Economy Reporter Naju-seok] The issue of military pension subsidies has already been pointed out over the past three years through settlement audits, but the Ministry of National Defense has not presented any more advanced stance other than responding that it will conduct research projects to review system improvements. Since the government does not properly follow the National Assembly's correction requests and the National Assembly has no means to enforce them, the same issues keep recurring. Because of this, the National Defense Committee this year specifically ordered the Ministry of National Defense to establish a military pension task force (TF) and "prepare comprehensive measures."

The background for demanding concrete action lies in the increasing financial burden of military pensions. In particular, the burden could grow even more due to the restructuring of military personnel caused by population decline, the current administration's pledge to raise soldiers' salaries, and the resulting increase in military officers' pay.

According to the "2022-2026 National Fiscal Management Plan" submitted to the National Assembly in line with this year's regular session, the government is expected to support military pensions with 2.9219 trillion won this year and 3.1017 trillion won next year. This includes not only the national contribution borne by the government as the employer but also the subsidies paid to cover military pension deficits. Looking at last year's settlement, military pensions accounted for only 19% of their own revenue, with national contributions at 34.6% and subsidies at 45.5%. Nearly half of the military pension is supported by the government in the form of subsidies.

Until now, military pensions have been considered a blind spot in public pension reforms such as the civil servant pension. This is due to the special nature of risking lives to protect the country and the difficulty of securing military personnel amid the North-South confrontation. Above all, the fact that military pensions could be excluded during the 2015 civil servant pension reform discussions played a significant role. At that time, it was argued that since military pensions had been reformed recently, the system needed to be stabilized. Accordingly, military pensions maintained a lower 7% contribution rate compared to the civil servant pension's 9%, and the pension payment rate determining the benefit amount was kept at 1.9%.

The fact that the financial burden of military pensions is not large relative to the overall national economy also reduced the need for reform. The Ministry of National Defense has explained to the National Assembly that even if the financial burden of military pensions increases, it remains relatively stable when viewed as a percentage of Gross Domestic Product (GDP). According to the long-term military financial outlook, the fiscal deficit (total expenditure minus total revenue) was 0.18% of GDP in 2020 and is projected to remain at about 0.24% in 2060. The National Assembly Budget Office also analyzed in its 2020 report "Long-term Financial Outlook of the Four Major Public Pensions" that the number of military pension beneficiaries would increase from 98,000 in 2020 to 151,000 in 2070 and then stabilize downward.

However, recent observations indicate changes in this outlook. The National Assembly Budget Office pointed out in its analysis of last year's settlement that "the military's efforts to redesign its personnel structure should be taken into account regarding the financial burden of military pensions." In fact, the military plans to reduce the size of active-duty troops while increasing officers and non-commissioned officers to respond to the decline in conscription resources. As the number of officers and non-commissioned officers, who are eligible for military pensions, increases, the number of beneficiaries will naturally rise, leading to a long-term increase in the financial burden of military pensions.

The current administration's plan to raise soldiers' monthly pay to 2 million won is another challenge for military pensions. President Yoon Seok-yeol pledged a 2 million won monthly salary for soldiers during his presidential campaign. Accordingly, the government is pushing to raise the pay of sergeants to exceed 2 million won by 2025. The problem is that if this increase is realized, a "military pay reversal" could occur where military officers receive less pay than soldiers. Since the government needs to secure officers and non-commissioned officers, it cannot avoid considering salary increases. In this case, the burden on military pensions due to salary increases could also grow. A ruling party National Defense Committee official said, "I am not sure if this issue was considered when raising soldiers' pay," adding, "When increasing officers' and non-commissioned officers' salaries, the military pension issue should also be considered together."