Pension Plan Fleeces Ordinary Workers

Salaried workers bear a greater burden than the self-employed in terms of pension payment as well as tax, it has been discovered. The former cannot hide anything from the tax authorities, since all deductions are made in advance before they receive their wages, while the latter can sandbag their tax returns and incomes, thereby reducing their tax and government pension obligations.

To prevent this unfair practice, argues the Korea Institute of Public Finance, a separate management system should be introduced.

The Institute published a report on July 17 in which it disclosed that that the local members of the pension underreport their incomes by about 20%, while claiming 50% more in benefits than they are entitled to.

The report recommends that the local members of the pension who participate in the national pension plan for the next 40 years will reap in benefits 1.96 times the amount they contributed.

On the other hand, salaried workers can receive 1.51 times more than the pension payments they make.

Even after raising pension deduction rates from the current 9% to 15.85% of gross income, the "yield rate" for the local members will be 1.21 times their contributions, amounting to 21% more in benefits than the payments they make. However, salaried employees will end up with benefits amounting to only 93% of the money they pay in to the plan. Therefore, according to the report, they will not be able to receive what they deserve.

Chun Byung-mok, a researcher at the Institute, says, "Under the current pension system, local pension subscribers benefit more. If the new system is introduced, the income of the salaried workers is transferred to the benefits of the local workers. This would be socially unacceptable."

Kwang-Hyun Kim kkh@donga.com