By Song Kyung-jin
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On the other side of the Atlantic, one of the political pivots has been moving toward the pension reform plan by Emmanuel Macron, the French president, in accordance with his campaign promise to reform the 42 pension regimes and the way that France thinks.
Macron's audacious plan was met with strong opposition and disruptive strikes, along with keen attention from around the world. So, while reaffirming his intent to push through the reform agenda, he offered an interim compromise to delay retirement.
The French government's reform plan is providing timely food for thought to Korea, the world's fastest-aging country with the world's lowest birthrate, which is likely to face similar pension problems in the not-too-distant future.
Korea is one country that should be prepared quickly to take on the imminent challenges posed by the rapid shifts in demography and thus the pension regimes in order to make them fairer and more sustainable for its people.
Rapid changes in Korea's demography are the foremost reason for us to revisit the national pension plan and the three other pension regimes ― for government employees, teachers and soldiers.
Korea's population is expected to decline to 39 million by 2067 from the current 52 million, whereas the share of the population aged 65 and over is set to shoot up unprecedentedly fast to 46.5 percent from the current 14.9 percent. The Korean government estimated in 2018 that the national pension fund will be depleted in 2057, three years earlier than the previous estimate. The year 2057 is when today's 20-year-olds are expected to start receiving pensions.
Depletion of the national pension fund earlier than initially expected stems partly from the unbalanced "pay less and receive more" pension structure put in place originally in 1988. It is no longer sustainable with changes in demography and the exponential growth in the number of the insured, from 4.5 million in 1988 to over 22 million as of now.
With this bleak future picture before us, public fears are mounting that the National Pension Service may be incapable of sustaining the world's third-largest pension fund and that they may end up with nil.
The tripartite Presidential Economic, Social and Labor Council had to end its 10-month endeavor to develop a set of pension reform measures in vain Aug. 30, 2018. An estimate was presented that if the pension replacement rate is increased to 45 percent from the current 40 percent and the insurance contribution from 9 percent to 12 percent, the depletion of the fund can be delayed by six years until 2063.
But it is estimated that only when the insurance contribution doubles or even triples, the financing burden will not be transferred to the next generation. In case Korea fails to increase the contribution rates promptly, its social expenditure will be one of the world's highest in 2060 at 28.6 percent of the gross domestic product as compared to the current 11.1 percent, half the OECD average.
Added to it, it is high time for Korea to start engaging in a meaningful social dialogue pertaining to pushing up the retirement age of 60, one of the lowest among OECD member countries.
Public sentiment toward the national pension is somehow off balance, too, which was well-revealed in a government survey conducted in 2018. Of the respondents, 63.4 percent said the insurance contribution should be lowered and yet 53.9 percent argued for more benefits.
In short, people wanted to pay less and get more. If we allow our greed to guide us to stick to the status quo, our children will fall to its victim by having to pay 30 percent of their income as their contribution to the national pension fund to pay for the current pensioners.
No sensible mind would want to leave this pension disaster with the next generation for their legacy. It will be the greatest source of generational divide unknown to us before, if left untouched.
As seen in France, no pension reform comes easy, and any process striving to arrive at any meaningful social agreement will be painful. Nonetheless, this is the only option we at the crossroads can take.
Who then should be doing the hard job of persuading people to bite the bullet? Who should present the resisting people with pension simulators pointing to the pressing need for pension reform?
Pension reform will require fearless political leadership that is strong enough to deal with resisting forces, both business and labor, and committed enough not to back down in the face of strikes and protests that may ground the nation to a halt. The National Pension Service itself also has the responsibility to prove to the public that it can deliver.
If the current government steps in for reform, it will go down in history book as its major achievement. The sooner, the better. The pension fund depletion clock is ticking. If we do not deal with it now, it will deal with us sooner than we think, as often said.
Dr. Song Kyung-jin led the Institute for Global Economics (IGE) based in Seoul and served as special adviser to the chairman of the Presidential Committee for the Seoul G20 Summit in the Office of the President. Now, she chairs an international cooperation committee, the Innovative Economy Forum.
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