With only a few days left until the 21st National Assembly’s term expires on May 29, rival parties have one thing they can achieve, if they have the will, which is passing the pension reform bill.
As South Korea rapidly ages, the national pension fund is expected to be drained by 2055 if no structural changes are made.
If the pension system isn’t revamped now, the National Pension Service might have to sell off its investment assets in six years to pay out pension benefits, according to an analysis in a sourcebook for public hearings on pension reform.
The latest calculations showed that in 2030, the national pension fund will post a gross income of 137 trillion won and a gross expenditure of 79 trillion won. Of the gross income, premiums paid by the subscribers will account for 76 trillion won, and the remaining 61 trillion won will be profits from investments in equities, bonds and others. Since the income from investments is merely an appraised value and doesn’t come in cash, the NPS will run short of 3 trillion won to pay the benefits, according to the analysis. This means it will have to sell off its investment assets to raise 3 trillion won.
But if the NPS, a major investor in the South Korean stock market and the largest shareholder of the country’s biggest companies, starts selling stocks, the price of those stocks will begin to drop, and the value of assets held by the NPS could also decline. This will cause the pension fund to dry up sooner.
If Korea fails to reform its national pension system now, the country will first see a capital market in turmoil and the side effects on society before struggling to guarantee post-retirement income, experts have said.
Fortunately, the main parties reached an agreement earlier on raising the premium rate from 9 percent to 13 percent. As for the income replacement ratio, however, the ruling People Power Party calls for raising it from the current 40 percent to 44 percent, while the main opposition Democratic Party says it should be at least 45 percent. The difference is only 1 percentage point. It's not something that requires a lot of time to settle.
The reform bill will die if it doesn't pass next week, and the 22nd National Assembly will have to reorganize a special committee to discuss pension issues. A new committee will probably take a year or more to study the issues and craft a new reform plan. With the local elections to be held in 2026 and the presidential election in 2027, both ruling and opposition parties are likely to drag their feet again on pension reform, which is about paying more now and receiving less after retirement, as it could affect voter sentiment.
President Yoon Suk Yeol has repeatedly expressed the government’s commitment to pension reform, but on Wednesday, his health minister said it could be discussed more thoroughly at the 22nd National Assembly.
Democratic Party leader Lee Jae-myung said Thursday he is willing to meet with Yoon to discuss the pension reform, and that his party has already requested a meeting of the special committee.
"If the government and the ruling party make a decision, the pension reform bill can pass at the plenary session on May 28," Lee said.
The two leaders should make the wise decision to pass the bill now. The longer the pension system stays unchanged, the greater the financial burden on future generations.
