[Initial Insight] Prerequisites for the Successful Reform of the National Pension Service

Excessive Fear of Estimated Figures
Gradual Increase Is Necessary, but
Consensus and Willingness for Rational Solutions Are Essential

[Image source=Yonhap News]

[Asia Economy Reporter Park So-yeon] Every time the National Pension Fund's financial calculation results are announced, the entire nation is gripped by fear of the 'fund depletion' day when the fund runs out. It was the same during the announcement of the 5th financial projection results this year. Sensational headlines such as "The National Pension Fund will be depleted by 2055" and "If the government delays pension reform, by 2060, people may have to pay 30% of their salary to the National Pension" flooded the media. Excessive focus on these estimated figures deprives people of the psychological space and the opportunity to obtain objective and sufficient information to calmly discuss the role and reform measures of the National Pension.

First, looking at the current National Pension structure, if you pay premiums for more than 10 years, you can receive a pension from age 63. The premium rate (amount paid) is 9%, and the income replacement rate (amount received) is 42.5%. Assuming an average monthly income of 1 million won, the premium is 90,000 won, and in old age, one can receive 425,000 won. Current estimates show that the fund will sharply decrease after 2040 and will be completely depleted by 2055. Some people who only see the pension as a simple number say that it might be more helpful for their life to save an amount equivalent to the pension premium or to pay off interest immediately. They think increasing their disposable income is more valuable than a pension with a minimal guaranteed amount. Some even express anger, questioning why they should pay more for a pension they may never receive.

The simple frame of "increasing the income replacement rate = increasing premiums = burden on future generations" only divides public opinion and clouds the goals of National Pension reform, which are securing retirement income and financial stabilization. One question we should ask is whether the fund will really be depleted. If things continue as they are, depletion is likely. However, fund depletion is an estimate based on pension financial calculations, which have limitations. These calculations estimate how the National Pension finances will evolve over 70 years until 2093, assuming various economic and demographic variables change but the National Pension remains as it is now.

In reality, whether the fund is depleted depends on what actions we take. To prevent fund depletion and ensure stable retirement for the public, ongoing discussions and revisions are being made to questions such as "Should we pay more (premium rate)?", "Should we receive more (income replacement rate)?", "Should we pay for a longer period (mandatory enrollment age)?", and "Should we start receiving benefits later (benefit commencement age)?".

Some argue that raising National Pension premiums as soon as possible is necessary to prevent financial collapse. This claim is somewhat exaggerated. Since the current National Pension fund exceeds 900 trillion won, there is no need to sharply increase premiums as some suggest. However, gradually raising the premium rate due to aging is inevitable.

Another misconception is that most people think they will not receive pensions if the fund is depleted. This is also untrue. European countries spend more than 10% of their GDP on pensions. The UK, Germany, and Spain have almost no funds, yet no elderly person has been denied pension benefits. Our government also states that pension payments will not be suspended.

Let's ask a more fundamental question. From the perspective of the younger generation, is it necessary to operate a National Pension system that feels like it constantly takes a portion of their income? When public pensions are viewed only through simple numbers, it is easy to perceive fund accumulation and expenditure as burdens and waste.

However, no matter how much individuals save and manage assets, it is difficult to guarantee well-being in old age. Ensuring a certain standard of living in old age and the pension expenditures that support it are essential. It is projected that by the 2060s, people aged 65 and older will account for 45% of the total population. Public pensions paid steadily by the state will be a crucial source of income for them. Especially in an era of rapidly changing demographics, this is a very important source of consumption. The purchasing power of the elderly can be a driving force for job creation among the younger and middle-aged population.

We aim to become a society that guarantees not only the human dignity of old age but also economic independence. To achieve this, national consensus that we live together as a social and economic community, compassion for others, and a rational will to solve problems are essential. If such consensus is supported, the National Pension system can be successfully reformed as a solidaristic social security system.