[Opinion] Pension Reform That 'Gets More' Is Not Acceptable

French President Emmanuel Macron's approval rating has plummeted to rock bottom. According to early-year polls, it stands at 21%, the lowest level in six years. His gamble on early general elections also failed, resulting in a loss of control over national governance. The call for 'Macron's resignation' has even emerged, and the embers of discontent remain unextinguished.

The pension reform enacted by President Macron in 2023 (gradually extending the retirement age from the existing 62 to 64 by 2030, and extending the contribution period required to receive 100% pension benefits from 42 years to 43 years by 2027) is cited as a major cause of this situation. The phrase 'approval rating exchanged for pension reform' has been coined. Ultimately, it became a poisoned chalice, but the political assessment of it as a “decision that went against populism” will likely remain valid.

During the holiday period, Lee Jae-myung, leader of the Democratic Party of Korea, brought up the issue of National Pension reform again. He proposed that after concluding parametric reforms (adjustments to contribution rates and income replacement rates) in February, discussions on structural reforms (adjustments to national, public servant, and basic pensions) should begin. This approach strongly reflects the nature of tackling urgent yet important issues first.

Previously, in May last year, the People Power Party and the Democratic Party nearly reached an agreement on parametric reforms. There was no disagreement on raising the contribution rate (the amount paid relative to standard income) from the current 9% to 13%. However, opinions diverged on increasing the income replacement rate (the amount received relative to average income during the subscription period). The People Power Party proposed raising it from the current 40% to 44%, while the Democratic Party suggested 45%. At that time, when Lee Jae-myung offered to concede and accept the People Power Party’s proposal, the latter insisted that structural reforms should be pursued simultaneously, causing the momentum to falter.

On January 31, Lee again urged, “Let’s conclude parametric reforms within February,” adding, “Reaching an agreement is better than doing nothing.” This statement emphasized the possibility of accepting the People Power Party’s proposal, but there was no change from last year. This is why it is considered a move to preempt the issue. The People Power Party is unlikely to accept it. As before, they insist that parametric and structural reforms must be done simultaneously and proposed forming a special parliamentary committee on pension reform for this purpose. It is a repetitive cycle.

Time is pressing, yet the political sphere seems stuck in a loop, which can be frustrating. However, the current parametric reform proposals from both parties may be worse than doing nothing. To use an analogy, it looks like pressing the accelerator and brake simultaneously.

The reason National Pension reform has become a hot topic is due to concerns over fund depletion. Therefore, the focus of reform should be on maximizing fund accumulation. But if the contribution rate is raised to collect more money (pressing the accelerator), while simultaneously increasing the income replacement rate to spend more (pressing the brake), can the pension system function properly?

If you press the accelerator (‘pay more’), you should at least avoid pressing the brake (‘receive more’). This means raising the contribution rate but lowering or at least maintaining the current income replacement rate. Naturally, this is an unpopular measure. Still, to avoid passing the burden onto future generations, someone must speak the truth and take responsibility.

(*Japan implemented pension reform in 2004, raising the contribution rate from 13.9% to 18.3% by 2017. Then-Prime Minister Junichiro Koizumi took responsibility. Sweden raised its contribution rate from 13.0% to 18.5% in 1998. Earlier, in 1991, five political parties jointly took responsibility for pension reform, emphasizing it was not an ideological issue, which laid the foundation. Germany carried out reforms three times, with then-Chancellors Konrad Adenauer and Gerhard Schr?der taking responsibility.)