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Health minister-nominee Moon’s conviction in pension reform

Health minister-nominee Moon’s conviction in pension reform

Posted October. 29, 2013 06:00,   


Moon Hyung-pyo, health and welfare minister nominee, stressed the need for fundamental reform of the civil servant pension and the national pension from when he was serving as a researcher at the Korea Development Institute. He urged the need to integrate the national civil servant pension and the national pension from 1999 when the civil servant pension faced a fiscal crisis. He also claimed that Korea needed to increase in phases pension premiums that subscribers pay to the national pension so as to reduce a looming deficit in the pension fund and remove the loopholes of national pension beneficiaries by linking the basic pension with the national pension.

The current civil servant pension is not equitable due to its excessively generous benefits when compared with the national pension. Due to these problems, the Kim Dae-jung, Roh Moo-hyun, and Lee Myung-bak administrations all recognized the need to reform the civil servant pension, but only took as stopgap reform measures in the face of agitation and protest by civil servant organization. But given the amount of cumulative subsidies, which needs to be covered with taxpayers’ money, from 2001 through next year reaches as much as 28 trillion won (26.4 billion U.S. dollars), Korea can no longer afford to leave this issue unaddressed.

As a scholar, nominee Moon had said, “In the U.S. and Japan, the civil servant pension is divided into three, namely, the basic pension, retirement pension and individual pension. The basic pension is effectively merged with the national pension, while the others are designed to be compatible with the private sector,” adding, “The only way to reduce deficit in the civil servant pension is to integrate the basic pension of the civil servant pension with the national pension.” It is too obvious that the half-baked reform measure, in which pension premiums are slightly raised while the institutional framework of the conventional civil servant pension remains intact, will not curb the deterioration of the pension’s fiscal balance, and the injection of mounting taxpayers’ money into the pension. Because retroactively applying the measure to incumbent civil servants could cause legal dispute, the measure can be applied to people who will be newly appointed as government employees.

The national pension also needs upward adjustment of insurance premiums or downward adjustment of insurance payment over the mid to long-term, but given massive public protest, it will be desirable to reform the civil servant pension before persuading the public. There are mixed views on associating the basic pension with the national pension: those who support the measure, saying, "It is a supplementary policy to benefit senior citizens who did not subscribe to the national pension, which was introduced in 1988"; and those who oppose it, saying, “Existing long-term subscribers of the national pension will suffer relative disadvantage.” Even if the basic pension and the national pension are linked, the authorities need to devise a revised measure to reduce damage on long-term subscribers of the national pension.

Moon has been nominated as the health and welfare minister who has to give political consideration in decision making. But he could encounter a situation where he will not be able to stubbornly push ahead with his conviction he had preserved as a scholar. Those who enjoyed conventional privileges, including bureaucrats, are also expected to protest reform. It remains to be seen whether Moon will overcome obstacles and reform overall problems with the pension system, thereby achieving a sound finance of pensions.