[Insight & Opinion] Pension Wars, Retirement Preparation, and Self-Reliance

Discussions on National Pension reform are at a standstill. The reality is that it is difficult to come up with clear answers because many stakeholders are involved. While there is consensus on the need for reform, once it comes to specifics, opinions are divided. The overall direction is clear. The essence of reform is to contribute more and receive less. This is a path that all countries that introduced the National Pension system before us have gone through. There is no reason for us to be an exception.

The issue of health insurance premiums is also far from quiet. Retirees are highly dissatisfied because their premiums increase when they switch from workplace subscribers to regional subscribers. Unlike the previous system where premiums were levied only on income, the new method charges based on both assets and income, which significantly increases the burden felt by retirees.

Finding a solution to the health insurance premium issue is not easy either. Due to demographic structure, premiums need to rise further. In Korea, the first and second baby boom generations born between 1955 and 1974 number over 16 million, accounting for more than one-third of the total population. Medical expenses are concentrated in the 5 to 10 years before death, accounting for more than half of lifetime medical costs, especially during the late elderly period after age 75. The earliest baby boomers born in 1955 have not yet reached 75. Once those born in 1955 begin entering the late elderly stage, the health insurance finances are likely to deteriorate sharply compared to now. Imagine the reality that over 20 years, the population entering the late elderly stage of 75 and older will be one-third of the entire population. While the National Pension is important, the health insurance finances, which are responsible for the health of the people, cannot be taken lightly. This is not a problem requiring complex mathematical calculations; it is foreseeable with basic arithmetic.

What happens if the finances are depleted? We are likely to follow the path other countries have experienced. That is, just as the shortfall in regional pensions like civil servant or military pensions is currently covered by national taxes, eventually, although the scale may differ, we will have to rely on financial support like other countries.

Despite this situation, when election season approaches, politicians make numerous promises. Welfare promises are a staple during elections. They promise more, but in reality, there is a high possibility that there will not be enough money to fulfill those promises. For a realistic person, betting on the side that those promises will not be kept might be a better decision. Whether to trust and wait for politicians’ promises or not and make self-reliant efforts is each individual's choice, but if it were me, I would probably choose the latter.

The whole world is currently in a pension war. Quite a few countries are struggling with pension reforms. In developed countries, the baby boom generation born after World War II has entered the elderly population en masse since 2010, shaking the existing pension system framework. As the population structure reverses, fewer people are paying in while more people are receiving benefits, causing social turmoil over pension issues in various countries. Although the situations differ slightly in countries like Greece, Portugal, Italy, Germany, and Russia, all are experiencing social conflicts due to pension reforms. Korea is about to start, or rather, has already started. The financial issues of pensions and health insurance represent a major shift in society’s main current. At a time when more must be provided and more people need support, the resources available are actually decreasing. It may sound cold and principled, but reality tells us that we must take more responsibility ourselves and prepare more.

Sang-Geon Lee, Head of Mirae Asset Investment and Pension Center