[Exclusive] Next Year's Public Officials Pension Deficit to Be Covered with 10 Trillion Won in Taxes

2025 Public Officials Pension Fund Reserve Surpasses 10 Trillion Won
Increases Over 95% in Two Years Due to Aging Trend
"Additional Measures Needed for Public Officials Pension Like National Pension"

Next year, 10 trillion won in taxes will be投入 to cover the public servant pension. This is because the number of pension recipients is increasing due to aging, while the contributions made by public servants themselves remain stagnant. Voices are emerging that the public servant pension system must be reformed in line with the national pension reform to solve the chronic deficit.

Government Allocates '10 Trillion Won' in Taxes for Public Servant Pension Deficit

According to a comprehensive report by Asia Economy on the 24th, the Public Servant Pension Service has decided to request 10.0475 trillion won as補?金 (補?金) for next year. The補?金 increased by 1.4435 trillion won (16.8%) from 8.604 trillion won this year. Compared to 5.1513 trillion won last year, it has increased by 4.8962 trillion won (95.0%) in two years. The central government’s share of the補?金 is 3.4758 trillion won, and local governments’ burden is 6.5717 trillion won. The Service will approve the fund operation plan and budget, which include these details, at an internal board meeting on the 26th.

補?金 refers to the money that the state and local governments provide when the public servant pension fund is insufficient. The principle is that public servants contribute 9% of their salary (contribution), and the state contributes 9% of the salary budget (pension burden) to form the fund. However, since the reserves were depleted in 2001, the補?金 system was introduced to cover pensions with taxes.

The reason for the increase in補?金 lies in the distorted structure of the public servant pension that causes deficits. Next year, expenditures from the public servant pension fund for retirement benefits and others are expected to be 24.2432 trillion won. However, the income for the same year is only 14.8621 trillion won. This means there is a shortage of 9.3811 trillion won to pay pensions. The pension deficit has been rapidly increasing, from 6.1499 trillion won last year to 7.3896 trillion won this year.

The expansion of the deficit is due to the increased number of retired officials and pension recipients. The Service estimates that the number of retired public servants, which was 57,163 last year, slightly decreased to 52,419 this year but will reach 61,186 next year. Pension recipients are also estimated to increase from 633,721 last year to 673,704 this year and 696,428 next year. A representative from the Ministry of Personnel Innovation, the supervising agency, explained, “Due to the aging trend, the number of public servants receiving pensions is increasing,” adding, “The increase in life expectancy directly results in the increase in補?金.”

Inevitable Snowballing Deficit... Public Servant Pension Reform Untouched

There is no way to cover the deficit other than taxes. Contributions from active employees or the state’s pension burden must increase, but the rate is fixed at 9%. Contributions increased only by 0.6% (42 billion won) from 6.778 trillion won last year to 6.82 trillion won. During the same period, the pension burden increased by 2.8% (220.4 billion won) from 7.8217 trillion won to 8.0421 trillion won. Although there is a way to increase returns, it is not easy. The Service’s target return rate for next year is 3.8%, and even if achieved, the income would be only about 484.6 billion won.

On March 28, 2015, members of the Joint Struggle Headquarters for Strengthening Public Pensions attended a rally to oppose the deterioration of the civil servant pension at Yeouido Park in Seoul.

The government has implemented reforms in 1995, 2000, 2009, and 2015 to solve the chronic deficit of the public servant pension but failed to resolve the problem. This is because the reforms were not fundamental and did not cover all active employees and recipients. For example, in the first reform in 1995, the pension receipt age was extended to 60, but it applied only to those appointed from 1996. In the third reform in 2009, the income replacement rate was lowered, but it applied only to newly appointed public servants, leading to controversy over its ineffectiveness in solving the financial deficit.

Additional structural reforms are essential, but discussions are nonexistent. Strong opposition from public servant unions is expected. On the 1st of this month, when the Public Opinion Committee under the National Assembly’s Pension Reform Special Committee included public servant pension-related content in a survey, seven organizations including the Korean Government Employees’ Union protested, saying, “It lays the groundwork for deterioration,” and demanded, “Stop attempts to raise insurance rates immediately.”

However, amid discussions on national pension reform, there are claims that occupational pensions such as the public servant pension, which require massive tax投入, should also be reformed. This voice was also raised at the autumn academic conference jointly hosted by the Korea Institute for Health and Social Affairs, the Korean Pension Society, and the National Pension Research Institute in December last year. Professor Kim Yong-ha of Soonchunhyang University pointed out, “Occupational pensions such as the public servant pension also need additional financial stabilization measures commensurate with the national pension’s parametric reforms (such as raising insurance rates or lowering income replacement rates).”