Cumulative Deficit Reaches 702 Trillion Won... 'Income Security Pension Reform Plan' Shifts Responsibility to Future Generations [Why&Next]

56% of Citizen Delegates Support Income Guarantee
Inevitable Snowball Deficit in National Pension by 2093
Complicated Pension Calculations, Only One Month Left

The pension reform plan chosen by the public was income security. The proposal to strengthen retirement income even if it means paying higher premiums surpassed the fiscal stability argument. However, in the face of serious low birth rates and rapid aging, if the 'pay more, receive more' plan actually passes, the burden on future generations will increase, and the sustainability of the pension system could be threatened.

Pension Reform Plan Supported by 56%, Snowballing Deficit Inevitable

The National Assembly's Special Committee on Pension Reform announced the results of a survey conducted by the Public Deliberation Committee at the National Assembly Press Center on the 22nd. Among the 492 citizen representatives who participated in the final survey, 56.0% chose the pension reform plan (Plan 1) emphasizing income security. The plan focusing on fiscal stability (Plan 2) received only 42.6%. The gap of 13.4 percentage points exceeded the margin of error.

Since March, the Public Deliberation Committee has been discussing how to change the current National Pension income replacement rate of 40% and the premium rate of 9%. The income replacement rate refers to the pension amount relative to the average income during the period of National Pension enrollment. Plan 1 proposes 'increasing the income replacement rate to 50% and raising the premium rate to 13%.' The core idea is to significantly increase both the pension amount and the premium rate. Plan 2 proposes 'maintaining the income replacement rate at 40% and raising the premium rate to 12%.' This means receiving the same pension as now but with a smaller increase in premium rate compared to Plan 1.

Before the citizen representatives began studying the National Pension in March, the fiscal stability plan led with 44.8%, far ahead of the income security plan at 36.9%. However, on the 13th of this month, the income security plan surged to 50.8%, surpassing the fiscal stability plan at 38.8%. Through study, deliberation, and discussion, the income security plan became the majority opinion. It is interpreted that many representatives who initially answered 'don't know' (18.3%) chose the income security plan after gaining more understanding.

The reason for the majority vote for Plan 1 lies in the fund depletion timeline. If Plan 1 passes the National Assembly, the fund depletion point will be postponed from 2055 to 2061. For Plan 2, the fund depletion point is 2062. The difference in premium rates between the two plans is 1 percentage point. Since paying slightly more can significantly increase the income replacement rate and the fund depletion point differs by only one year, it is interpreted that Plan 1 received higher support.

The problem is the accumulated deficit. Although the fund depletion points are similar, the deficit after depletion is drastically different. According to the National Assembly Budget Office, Plan 1 is estimated to increase the accumulated deficit by 702 trillion won by 2093. In contrast, Plan 2 is expected to reduce the accumulated deficit by 1,970 trillion won. The premium rates show a similar pattern. If a 'pay-as-you-go' system is introduced after fund depletion, where premiums are collected annually to pay pensions, premiums would need to be 43.2% of income by 2078 under Plan 1. Plan 2 would require about 35%, which is lower.

Regarding raising the 'mandatory enrollment age,' 80.4% of citizen representatives responded that the current mandatory enrollment upper age limit of 59 should be raised to 64. Maintaining the current age was supported by 17.7%. For 'measures to eliminate blind spots in the National Pension' (multiple responses allowed), expanding childbirth credits (82.6%) and expanding military service credits (57.8%) were the top choices. For the basic pension, 52.3% favored maintaining the current system, while 45.7% supported gradually reducing the coverage. As for improving intergenerational equity, 92.1% agreed with guaranteeing the obligation to pay National Pension benefits, and 46.4% responded that retirement pensions should be converted to quasi-public pensions.

Complicated Pension Calculations... Only One Month Left for the National Assembly

Kim Sang-gyun, Chairman of the National Assembly Pension Special Committee's Public Deliberation Committee, is revealing the survey results on the national pension reform plan conducted with a citizen delegation (500 people) at the National Assembly Communication Office on the 22nd. Photo by Kim Hyun-min kimhyun81@

Controversy over the Public Deliberation Committee's reform proposals is expected to continue for some time. Scholars emphasizing fiscal stability have raised concerns about balanced information provision since the committee's launch. Criticism has been directed at handling explanations of accumulated deficits between Plan 1 and Plan 2 as expert opinions rather than information. There have also been criticisms regarding the composition of the representative panel. The panel includes individuals aged 18 and over, but considering population proportions, there is a possibility that fewer young people were included. If there are fewer young people and more middle-aged and older adults, there may be relatively more citizens supporting income security for old age.

The Public Deliberation Committee maintains that there is no problem with the results. Kim Yeon-myeong, a committee member and professor of social welfare at Chung-Ang University, emphasized, "The core of public deliberation surveys is to ensure that the public fully understands accurate information about the issue," adding, "Data on the pay-as-you-go system when increasing the income replacement rate, including annual figures, are properly included in the deliberation materials."

Civil society organizations have welcomed the income security plan. The Public Pension Strengthening National Action (Pension Action), which includes 306 civic groups such as People's Solidarity for Participatory Democracy, the Korean Confederation of Trade Unions, and the Federation of Korean Trade Unions, stated in a commentary, "Citizens chose social solidarity and strengthening public pensions rather than individual survival," emphasizing, "The first step of reform to prevent old-age poverty across all generations, which is the fundamental function of the National Pension, has been taken."

The pension reform calculations have become complicated following the Public Deliberation Committee's results. While the National Assembly is not obligated to follow Plan 1 chosen by the citizens, since the majority demanded income security, the Assembly cannot ignore it. The government views that considering low birth rates, aging, and fiscal sustainability, the repercussions of the 'receive more' plan will be significant. However, the Ministry of Health and Welfare, the main department in charge, stated only that "we will strive to achieve sustainable pension reform for the future during the Pension Special Committee discussions," following the announcement of the survey results, respecting the citizens' decision.

With the 21st National Assembly ending on the 29th of next month, time is limited. The Pension Special Committee chairman, Joo Ho-young of the People Power Party, was elected in this general election, but the ruling party's secretary Yoo Kyung-joon lost, and opposition party secretary Kim Sung-joo was eliminated in the primary. If the pension reform plan is not finalized quickly, it will have to be passed in the 22nd National Assembly, and the process of reestablishing the special committee and forming members from both ruling and opposition parties is likely to cause delays. For now, Chairman Joo plans to soon receive the final survey results and work on reaching a bipartisan agreement.