Major Reform of Civil Servant Pension Announced

The pension system for civil servants, a chronic burden for the government, will undergo reform under a plan by a committee on raising premiums while reducing benefits.

Critics say, however, that the reform plan falls short of expectations since it will put prospective public servants at a disadvantage and pressure the government to subsidize civil servants’ pension.

The committee consisting of public officials, civil servant union members and scholars presented a policy proposal on the revision of the pension system to the government yesterday. The committee proposed a 27-percent rise in pension contributions and a maximum 25-percent cut in pension payouts.

According to the proposal, pension premiums will rise 27 percent to seven percent of taxable income by 2012 from 5.525 percent. Pension payouts, however, will drop from 2.1 percent of taxable income to 1.9 percent.

If the revision takes effect, public servants hired next year will get 25 percent less benefits when they retire after 30 years.

For instance, a civil servant with a monthly salary of 1.7 million won must pay 146,000 won for pension under the proposed system, up from the current 89,000 won. When he or she retires after 30 years, however, the monthly pension payout will be 1.18 million won, considerably less than the current amount of 1.58 million won.

The combined value of benefits will also be reduced from 550 million won to 411.8 million won.

Incumbent public officials, however, will be less affected since the changes do not apply to the working period before the revision takes effect. So newly recruited public officials are expected to pay 19 million won more in pension premiums but receive 140 million won less than current civil servants who have worked for 20 years.

The proposal will also have prospective public officials start receiving pension benefits from age 65 instead of 60. The payout for the surviving family will also drop to 60 percent of the amount a retiree receives, down from 70 percent.

The assessment standard for the pension payout will be changed from the average income throughout the entire period of employment to the average monthly income three years before retirement.

The committee said the revision will reduce the subsidy for pension payment 51.2 percent to 1.36 trillion won over the next five years. This positive effect will disappear in 2018, however, as pension recipients are expected to significantly increase due to the rapid aging of the population.

About that time, 6.01 trillion won will be needed for the pension system, five times the existing amount the government provides.

The proposal will be confirmed by the Public Administration and Security Ministry and submitted to the National Assembly for approval. If approved, it will take effect next year.

ssoo@donga.com