State pensions face mounting calls for reform

State pensions face mounting calls for reform

Deputy Prime Minister and Finance Minister Hong Nam-ki, right, speaks at a government meeting, Aug. 25. Korea Times file

Soaring gov’t debt to entail 14.7 trillion won in interest this year

By Lee Kyung-min

Calls are expected to grow for the reform of four state-run pension funds, as nearly 60 trillion won ($51 billion) will be allocated for public spending next year, up 6.2 percent from this year’s 55.8 trillion won.

The year-on-year increase will require a greater amount of taxpayers’ money to slow the hemorrhaging of the funds, as a rapidly aging society and overall decrease in labor productivity cause government welfare expenditures to snowball.

Mandatory spending by law cannot be curbed unless a revision is proposed, posing a major threat to the fiscal soundness of a country, economists said, Sunday.

Also sustaining the rapid increase in public spending is the fact that many retirees are seeking monthly pension payouts instead of receiving a lump sum payment, an inevitable choice since ultra-low interest rates on bank savings have made it impossible for pensioners to make ends meet.

Dankook University economist Kim Tai-gi said pension reform will emerge as a key pledge of presidential candidates in next year’s presidential election. “Pension reform is a longstanding issue that impacts all taxpayers, especially the young generation who are to shoulder the entire burden.”

According to the national financial management plan from 2021 to 2025 submitted by the finance ministry to the National Assembly last week, the four funds in question will need over 59.2 trillion won in public money next year, up 6.2 percent from 55.8 trillion won this year.

About 8.7 trillion won has been earmarked to offset the deficit reported by the National Pension Service (NPS), civil servants’ pensions, pensions for private educators and military pensions. Expenditures of the four funds will grow at an annual average of 7.8 percent over the next four years.

The figure will rise to 65.1 trillion won in 2023, up further to 70.6 trillion won in 2024 and 75.3 trillion won in 2025. Taxpayers’ money needed to offset the deficits of the four funds will rise to 10.4 trillion won in 2025, up from 9.2 trillion won in 2023 and 9.8 trillion won in 2024.

The possible reform of the country’s pension system has long been a subject of controversy, because income security for people aged over 60 is at a major crossroads. Given the currently limited options for pension services due to a growing number of recipients, younger generations are complaining about having to pay more out of their salaries to support pensioners.

Over 30.9 trillion won will have to be spent by the NPS, followed by the civil servants’ pension (20.1 trillion won), private educators’ pension (4.5 trillion won) and military pension (3.6 trillion won).

The average annual increase of private educators’ pensions over the next four years will be 8.2 percent, while the civil servants’ pensions will rise 7.4 percent and the military pensions will increase 3.9 percent.

The ministry’s plan also showed the government debt to be paid by taxpayers’ money is expected to exceed 600 trillion won this year and soar further to 900 trillion won in 2025.

This means the interest on debt-financing will amount to 18 trillion won in the same period, up from 14.7 trillion won this year.

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