Published : 2013-01-25 20:21
Updated : 2013-01-25 20:21
Debate continues on President-elect Park Geun-hye’s plan to reform the current basic old-age pension. During her election campaign, Park put forward three interrelated proposals concerning the senior pension.
First of all, she promised to double the monthly pension benefit from the present 97,100 won to 200,000 won.
Then she proposed to make the increased benefit available to all senior citizens aged 65 or older, regardless of their income. Currently, the benefit is paid to people in the bottom 70 percent of the income scale.
Park’s reform plan also calls for merging the senior pension with the National Pension Scheme. Her idea is to make the NPS a two-tier system consisting of a basic pension and an income-proportional part. She plans to convert the universalized senior pension into a basic pension.
Regarding Park’s proposal to increase the benefit amount, there is little objection. It is widely recognized that the current old-age pension benefit is too small to alleviate worsening poverty among the elderly in Korea.
Korea tops the OECD countries in terms of the poverty rate among senior citizens. In 2010, the rate stood at 47 percent, meaning nearly 1 in 2 elderly people lived in relative poverty.
The most effective way to tackle the problem is to increase the old-age pension benefit. The NPS is of little help here because it only covers a small proportion of senior citizens.
As for Park’s plan to expand the coverage of the senior pension, many question its wisdom, citing the huge amount of money required to finance the expansion.
During the election campaign, the ruling Saenuri Party said Park’s reform plan would cost about 20 trillion won for four years from 2014. But Tchoe Byong-ho, president of the state-run Korea Institute for Health and Social Affairs, estimated the cost at 39.4 trillion won.
According to news reports, the presidential transition team is seeking to reduce the scope of beneficiaries. Given the large costs involved, this move is well advised.
Park’s call for a universal basic pension is valid. But Korea simply cannot afford such a program now. Under the nation’s current economic situation, it does not make sense to pay the benefit to affluent seniors such as Samsung Group chairman Lee Kun-hee.
The transition team is also reported to be considering excluding the recipients of special occupational pensions, such as the Government Employees Pension, Private School Teachers Pension and Military Personnel Pension.
Government officials, private school teachers and military personnel can be excluded, given that they already enjoy benefits far greater than those provided to ordinary citizens under the NPS.
As a matter of fact, the transition team needs to curtail their benefits to ensure equity with NPS beneficiaries.
Park’s plan to make the basic pension part of the NPS involves complex issues. One key motivation for the proposed merger is the need to reduce the fiscal burden in financing the pension reform.
Unlike the NPS which runs on contributions from subscribers, the current old-age pension is jointly funded by the central and local governments.
If the senior pension continues to be financed solely by taxpayers’ money, the burden on state finances will surge even without the doubling of the pension benefit or the expansion of the beneficiary scope, given that the number of recipients is growing quickly due to the rapid aging of Korea’s population.
Park’s merger proposal is intended to tap into the NPS funds to ease poverty among the elderly. Currently the NPS has around 400 trillion won on its account as it collects more in contributions than it pays out in benefits.
According to reports, the transition team is planning to use NPS funds to cover around 30 percent of the additional funding required to bankroll Park’s pension reform.
Yet this plan faces strong objections. Critics oppose it on the grounds that it passes the funding burden on to future generations.
Advocates justify the idea by noting that the NPS is basically designed to support the elderly through generational solidarity. This argument has a point but it is questionable whether advocates will prevail in the continuing debate.