President Yoon Seok-yeol answers reporters’ questions during a national briefing and press conference held in the briefing room at the presidential office in Yongsan, Seoul on the morning of the 29th. Yonhap News
President Yoon Seok-yeol unveiled the direction of pension reform on the 29th, outlining the contours of structural reform that he has emphasized so far. He emphasized a multi-tier pension system comprised of basic pension, national pension, retirement pension, and personal pension. He made it clear that the integration of special occupational pensions such as those for public officials, academics, and military personnel with the national pension is not under consideration. President Yoon stated, “I believe that there will be no delays or difficulties in bipartisan agreement because pension reform will not be hindered by such issues.”
President Yoon also added intergenerational fairness as a new principle of pension reform. He focused on soothing the younger generation, who have been the most reluctant group when it comes to pension reform. To address this, he suggested two solutions: legalizing the guarantee of pension payments by the government and differentiating the speed of premium increases by generation. President Yoon explained that legalizing payment guarantees could instill confidence in young people that they will receive their pensions. The issue of payment guarantees has mainly been advocated by the Democratic Party.
Regarding differential premium burdens, President Yoon clearly acknowledged a proposal made by the Ministry of Health and Welfare in October last year. Under the current system, those in their 50s paid premiums of 3-6% in the 1990s and were guaranteed a 70% replacement rate, which influenced pension calculations. However, since 2008, the replacement rate has dropped below 50%, and now stands at 42%. Younger individuals pay a 9% premium but receive lower pensions. The logic behind differential burdens stems from these disparities.
President Yoon announced the introduction of an automatic fiscal stability mechanism, which adjusts pension amounts automatically based on environmental changes. The system involves reducing pension amounts automatically when the number of pension subscribers decreases and life expectancy increases, thereby lowering the inflation-adjusted rate. While this mechanism would greatly contribute to fiscal stability, it may decrease income security if pension amounts are automatically reduced, especially considering that pensions are already relatively low.
President Yoon also outlined improvements to basic pensions. Currently, those receiving basic livelihood benefits are ineligible for basic pensions due to overlapping benefits. Critics have referred to this as “giving and taking away” basic pensions. President Yoon stated that even in cases of overlap, recipients will receive both benefits. He had promised an additional payment of 100,000 won in his presidential election pledge book, but now he has pledged full payment (334,810 won). This full payment would require an additional 4 to 5 trillion won. Furthermore, President Yoon promised to increase the basic pension to 400,000 won within his term. Despite potential criticism for increased populism, President Yoon did not mention reforming basic pensions.
President Yoon expressed his commitment to strengthening retirement pensions to ensure they become a substantial source of retirement income and expanding incentives for personal pensions. These measures to strengthen the 3rd and 4th tiers of the pension system are generally welcomed, but the effectiveness of such policies remains to be seen, especially considering the prevalent practice among those in their 50s to use retirement funds as a lump sum. How effective these new measures will be is eagerly anticipated.