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The urgency to speed up public pension reform

Posted September. 14, 2022 07:59,   

Updated September. 14, 2022 07:59


The ratio of mandatory spending, of which the government is not permitted to adjust the scale or spending items, for next year's fiscal budget exceeds more than half of the overall budget. This is due to the significant increase in legally mandatory spending from the four major public funds. According to the national fiscal operation plan submitted to the National Assembly by the Ministry of Finance and Strategy, mandatory spending for the National Pension Service, Government Employees Pension, Teachers' Pension, and Military Pension will rise by 15 percent year-on-year for 2023. This is equivalent to one-third of the welfare budget.

The rapid increase of public funds is attributable to the abrupt rise of the number of people receiving pensions and extended pension receiving periods due to the aging population. On the other hand, low birth rates signal fewer people submitting premiums, thus widening the gap between spending and income. As a result, the Government Employees Pension and the Military Pension funds have already been depleted, with deficit of 4.7 trillion won and 3 trillion won predicted, respectively, for next year. The same situation will also occur for the Teachers' Pension and the Military Pension from 2025 and 2041, respectively. It has been quite a while since taxpayers’ money has been invested into the public fund deficit.  

Such a rapid increase of mandatory spending in pensions and public health insurance means that the government is becoming increasingly limited in its ability to use finances by discretion. If the government fails to slow the growth rate of mandatory spending at 7.5 percent, mandatory spending will soon occupy 80 percent of the overall budget. The government said that it would restructure spending to boost fiscal soundness. Still, reducing the existing business scale tied to mandatory spending to generate new income is tough. Fiscal soundness cannot be achieved without reforming public funds, which accounts for the highest portion of the public welfare budget.

Public pension reform is about adjusting the responsibilities and burdens between the present and future generations. Pension reform involving more premiums or fewer pension payouts requires concession and social agreement. The government should consider structural reform, such as redesigning the overall pension payout method in connection with basic pension or integrating National Pension with Occupational Pensions.  

Pension reform is one of the most difficult challenges and requires an extended amount of time to tackle. The government has only just begun the financial estimate for public pension, and the National Assembly's Special Committee for Pension Reform was founded in late July, which remains idle. President Yoon Suk-yeol had stressed during the presidential campaign that public pension reform was inevitable and "should be done as soon as the government takes office." The golden time for reform is running out and should be taken advantage of immediately.