Current Insurance Premium Rates Make Pension Sustainability Difficult
Time to Expand Welfare Projects and Consider Governance Improvements
[Asia Economy Reporter Jo In-kyung] Kim Tae-hyun, Chairman of the National Pension Service (photo), identified "securing intergenerational equity" as the most important factor in the direction of pension reform. Given the social consensus that the current contribution rate cannot ensure the sustainability of the pension, he emphasized the need to discuss various measures, including the previously discussed "pay more, receive more" approach, and to promote feasible methods that the public can accept.
At a meeting held on the 8th at the Seoul Northern Regional Office of the National Pension Service, Chairman Kim stated regarding the direction of pension reform, "To enhance the sustainability of the National Pension, three requirements must be met: securing old-age income security, financial sustainability, and intergenerational equity."
He added, "Since specific measures are being discussed mainly by the Special Committee on National Pension Reform, it is not appropriate for me to directly mention the details or direction," but said, "There is a social consensus that the current contribution rate (9%) cannot secure pension sustainability. The issue is how much and how to raise it."
He continued, "I believe that a win-win pension reform should be promoted based on three criteria: it can solve various pension problems, it is feasible, and it is acceptable to the public and stakeholders," and promised, "The National Pension Service will support the discussions both policy-wise and practically to ensure smooth progress."
He also added, "I think intergenerational equity is more important than ever before. This aspect will be a crucial element in the social consensus related to pension reform."
Regarding the National Pension Fund's investment return rate of -7.06% recorded by the end of September this year, he requested, "Please distinguish whether the loss is realized or an evaluation loss when judging the return rate." According to the Service, the biggest factor affecting the decline in returns was domestic stocks at -25.47%, followed by foreign stocks at -9.52%, and domestic bonds at -7.53%.
Chairman Kim expressed confidence, saying, "It is true that losses were incurred due to the global economic crisis and the sharp drop in the stock market, but conversely, if interest rates fall or stock prices rise, the return rate can naturally recover."
He also revealed plans to secure autonomy and flexibility to increase the fund's investment returns. Currently, key asset allocations in fund management require approval from the Fund Management Committee, so each time a new investment target is added, approval must be obtained. Chairman Kim stated, "We will continuously strive for long-term returns through flexible asset management that can fully utilize the pension's capabilities and ensure thorough risk management, and we will secure more flexible means to allow the Fund Management Headquarters to manage assets under professional judgment."
He also expressed the view that the welfare projects of the National Pension should be expanded. He said, "Legally, the National Pension can conduct various welfare projects, but currently, it only operates Silver Loan (emergency old-age fund loans) and Cheongpung Resort," adding, "Within the scope that does not undermine the fund's stability and returns, a certain portion should be expanded to return benefits to subscribers or beneficiaries through welfare projects."
Chairman Kim further stated, "Discussion or interest in governance among ESG (Environmental, Social, Governance) issues seems less than in the past, but it is time to seriously consider building healthy governance," and said, "Improving governance will also contribute to enhancing returns in the long term."
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