Trust, transparency needed to shatter generational divide
By Lee Yeon-woo
Last March, the K-Policy Platform announced intriguing results that highlight generational challenges surrounding the national pension. It surveyed 14 graduate students, asking if they would prefer to receive 30 percent or 40 percent of their average monthly income after retirement. Surprisingly, nine out of the 14 chose the 30 percent option.
Currently, the average monthly payout amounts to around 1 million won ($765.46) for those subscribing to the National Pension Service (NPS) for over 20 years. Even when supplemented with other subsidies, the amount falls short of covering the minimum living expenses, which stand at around 2.5 million won. Given this context, it would seem more logical for them to opt for the 40 percent proposal.
Could this preference be a result of the young people’s lack of foresight about their later years? To explore this, the platform facilitated a discussion led by two experts, each advocating for the 30 percent and 40 percent options. However, the number of young people favoring the 30 percent option even increased to 11 after the discussion.
This shift suggests that young people’s preference for a lower income replacement rate isn’t due to indifference about their future. Rather, it is a consideration of the immediate financial impact: to receive a higher income later, they would need to contribute more now.
Many young adults, in conversations with The Korea Times, expressed similar concerns.
“Receiving a national pension feels like a distant prospect, especially given the current challenging economic situation,” said a 29-year-old freelancer, asking to be identified only by her surname Lee.
“The elderly population we need to support is increasing continually, while the number of children who will support us is limited. It seems nowadays youths are investing heavily in supporting the current elderly, only to potentially face neglect on ourselves in our later years. Wouldn’t it be better to invest the money elsewhere and prepare on my own?”
Such concerns are not without justification. According to the National Pension Research Institute, under the current premium and income replacement rate, individuals born in 2020 will end up paying over 10 million won in insurance fees more than those born in 1970. Yet, the total pension amount they will receive after retirement will be 80 million won less.
“It’s crucial to focus on enhancing benefits for the younger generation, rather than merely implementing financial stabilization measures that increase the burden on young adults,” the institute noted in a report released last May.
This generational disparity has roots in the original design of the pension system. Initially, the system was structured such that contributing a mere 3 percent of one’s monthly income would guarantee retirees 70 percent of their average earnings. This model has proven to be highly unsustainable during this period of record-low birthrates.
Without significant reforms, the national pension is expected to start facing deficits by 2041, and it is anticipated to be completely depleted by 2055. This depletion aligns with the retirement period of individuals born in the 1990s.
A special committee in the Assembly is anticipated to draft a consensus bill by April. Yet, the process does not suggest an easy journey, given the fierce conflicts of interest involved.
One question emerges. Is increasing insurance fees truly “unfair” to young adults?
In his book “Uncomfortable Pension Book” (direct translation), Kim Tae-il, head of the Korea University Institute on Aging, clarifies that delaying insurance premium increases actually harms the younger generation, contrary to popular belief.
“Contributions to the national pension are made up to the age of 59. If the insurance premium is raised next year, an individual who is 50 years old now will be required to pay the higher premium for the next nine years. On the other hand, if the premium hike occurs in five years, they will need to pay the increased amount for only five years,” Kim said.
Seok Jae-eun, a social welfare professor at Hallym University, echoed the sentiment. During a public hearing in December, she proposed increasing the insurance premium rate gradually from 9 percent to 15 percent, while raising the pension eligibility age to 68 by 2048, in order to sustain the reserve fund until 2093.
“Even under this revision, the pension benefit ratio would still be about 1.23 times for an average earner born in 2000, making it a favorable proposition for the younger generation,” Seok said.
Experts say if there was a guarantee that this system could secure one’s welfare in later years, many would agree to pay higher premiums. This, again, highlights the urgent necessity for system reforms.
“If the national pension constitutes a significant proportion of retirement income, as seen in Western societies, and plays a key role in reducing the elderly poverty rate, people will recognize the importance of the pension system. Then, there will be fewer people saying, ‘I’d rather not contribute and receive nothing,'” Kim said.
To regain people’s trust, it is necessary to provide transparent information about the pension system and consider various policies that can lift the burden.
An exemplary case can be found in the U.K.
In 2003, the primary task of the U.K. pension committee was to deliver objective facts related to the pension in an honest, detailed and easily understandable manner. After publishing several reports for years, it conducted extensive public hearings across various regions for six months. The committee also established National Pensions Day on March 18, 2006, inviting citizens from all over the country to discuss issues throughout the day.
In earlier surveys, most citizens seemed to view retirement as a distant concern, and were opposed to tax increases despite disliking the idea of suffering poverty in old age. However, later surveys indicated a shift, showing a growing acceptance of the costs and burdens associated with reform. Consequently, pension reform has continued to be pursued with its essential framework maintained, even following a change in government.
“For the national pension to be genuine in its purpose, the vast majority of the public should be entitled to benefits in their old age, and the pension should be sufficient to sustain at least a basic standard of living. The aim of pension reform should be to transform it into a true pension for the people, not just in name, but in actuality,” Kim said.