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National Pension Fund on shaky grounds

Posted July. 15, 2000 12:02,   


A report has projected that the National Pension Fund will hit bottom by the year 2049 should current system of management scheme be allowed to continue. Korea Institute for Health and Social Affairs (KIHSA) has included a supplemental report titled "A Sound Management of Public Fund" in their supplemental mid-month issue of their periodical which painted such dire picture of the long-term financial outlook. Originally intended for inclusion in the June issue of the Social Welfare Forum magazine, the report was yanked by the government for reasons that the content needed further examination by the government authorities.

The report pointed out that the current method of determining the amount of pension in accordance to the previous contribution made by the pensioner to the fund would indeed return a gross income of 89 trillion won by the year 2033 through a pension fund build up and a return on investment. However, the income would be offset in full by the liability of having to meet the pension payments to the citizenry as well as to overhead management cost. From the year 2033, the financial balance sheet may dive into the red as reserve fund is slowly depleted. By year 2049, the report points to a danger of not having any fund available.

The report further detailed a counter-measure which took into account the phenomena of increased life expectancy of the Korean citizens as well as the swell in number of those in the retirement age bracket. The report suggested that the qualifying age for the pension be pushed from current 60 to the age of 68, and also that the current 9% employee pension tax be subject to gradual increase to 10% by 2010, 15% by 2030. Should such counter-measures be adopted, the pension fund on reserve would jump from current projection of year-end reserve of 60 trillion to 1,364 trillion by year 2030, 2,700 trillion by year 2050, and 4,375 by year 2080, hardly a figure easily depleted. Professor Choi Byung Ho of KIHSA stated, "Our current system of pension fund provides pensions which are double the amount of pension tax collected. With the added adverse trend of becoming an aging society, it is imperative that we place certain counter measures for the deterioration of the system." In response to the dark report, a source at the Ministry of Health and Welfare stated, "As there is a mechanism which allows for adjustment of pension tax and pension payment every five years, there really is no danger of such depletion from happening."