Pension reform obviously held back by government

As the South Korean government’s pension reform plan released Friday came under fire for not providing reliable arithmetical information regarding pension premiums and benefits, the Ministry of Health and Welfare issued an explanatory statement the following day to clarify that the government is strongly determined to reform the pension system. However, minutes of the Financial Calculation Committee, an advisory body for the ministry, have raised suspicions about the government’s lack of willingness. Although the committee agreed at first to increase pension premiums and delay the age of taking benefits, it was confirmed that an initiative to raise the benefits was added to the plan at the last minute at the request of the administration.

In a public hearing held last month, the committee was criticized as irresponsible for publishing 18 reform plans combining the variations of pension premiums and the time of receiving benefits. In its minutes, criticism was internally raised with comments such as “The plan is rated C at best” or “We will be faced with a backlash from citizens confused with what needs to be done next.” However, in the last meeting on Oct. 13, a pension policy official from the ministry requested a wider range of options available, asking the committee to include a plan to increase income replacement rates with higher benefits to be granted. As a result, its final report suggested a total of 24 reform plans devised in haphazard manners. Unprofessionally oblivious of its role to lead experts to conclude a single final option, the government got in the way of discussing pension reforms, even asking them to propose more choices. Reasonably, it deserves criticism for holding back the reform.

In the ministry’s explanatory statement, it responded to the criticism that specific numbers are not provided in the plan by making lousy, out-of-context, and misleading excuses that even the former administrations did only give where pension reforms should be headed roughly but did not specify figures even twice. The reason why the pension plan issued in 2008 by the Lee Myung-bak administration did not include figures is that the Roh Moo-hyun administration decreased the income replacement rate to 40 percent in the previous year. Similarly, the Park Geun-hye administration made it clear from the start that it would not increase pension premiums. Thus, it differs from the incumbent administration arguing for higher pension premiums but omitting supporting numbers. What’s more, the Park administration achieved a saving effect of 333 trillion won for 70 years based on the reform to the pension system for public officials in 2014.

Given the trend of low birthrates, population aging, and low growth, pension reforms are an inevitable task of our time as the government has put it. Japan, which relates to its neighbor's concerns, reformed the pension scheme earlier with 100-year resources available to be granted to recipients. By contrast, South Korea does not seem ready to start although it not only suffers from a faster pace of low fertility and an aging population but also has 32 years’ resources prepared. The government should stop making absurd excuses immediately but instead disclose the severity of issues troubling the national pension system to reignite the flames of reform.