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[Editorial] Reality check for reform
New pension program should be sustainable
By Yu Kun-haPublished : July 19, 2013 - 20:27
President Park Geun-hye’s plan to reform the current Basic Old-age Pension is likely to be scaled back due to the worsening economic situation.
On the campaign trail, Park promised to transform the old-age pension into a “basic pension” by doubling its monthly benefit from the current 97,100 won to 200,000 won and making it a universal plan covering all senior citizens aged 65 or above.
Currently, the state program only pays the benefit to elderly people in the bottom 70 percent of the income scale.
Park also planned to integrate this new pension plan with the National Pension Scheme by making the NPS a two-tier system ― a basic pension and an income-proportional program.
Her reform plan, however, is unsustainable under the current economic situation. This is the final conclusion of the presidential advisory panel that has explored for the past four months ways to implement Park’s campaign promise.
The committee has presented three scaled-back options. The first calls for paying 200,000 won a month to senior citizens in the bottom 80 percent of the income ladder.
The second option proposes paying a varying amount to each pensioner based on their income and reducing the beneficiary scope to the bottom 70 percent on the income scale.
The third one is the same as the second except that the benefit amount varies based on a recipient’s current state pension benefit.
Based on these options, the government will draw up its pension reform bill by August for submission to the National Assembly.
Critics say that whichever option is adopted, it would represent a huge setback from Park’s original scheme. This means Park promised more than she could deliver, they say.
That is true. But the government cannot and should not introduce a welfare program that cannot be sustained. This point is especially valid when the economy has lost growth momentum.
As the new pension plan is to be fully financed with taxpayers’ money, a larger pension benefit means a bigger burden on future generations.
According to the committee’s estimate, even when the third option, the least costly alternative, is chosen, pension payouts will total 15 trillion won in 2020.
The government can hardly afford any additional burden as its balance sheets are already severely strained by expanded welfare expenditures and falling tax revenue.
Alleviating poverty among senior citizens is an urgent task, but there is only so much that the government can do when the economy staggers. The government is advised to draft its reform bill prudently.
On the campaign trail, Park promised to transform the old-age pension into a “basic pension” by doubling its monthly benefit from the current 97,100 won to 200,000 won and making it a universal plan covering all senior citizens aged 65 or above.
Currently, the state program only pays the benefit to elderly people in the bottom 70 percent of the income scale.
Park also planned to integrate this new pension plan with the National Pension Scheme by making the NPS a two-tier system ― a basic pension and an income-proportional program.
Her reform plan, however, is unsustainable under the current economic situation. This is the final conclusion of the presidential advisory panel that has explored for the past four months ways to implement Park’s campaign promise.
The committee has presented three scaled-back options. The first calls for paying 200,000 won a month to senior citizens in the bottom 80 percent of the income ladder.
The second option proposes paying a varying amount to each pensioner based on their income and reducing the beneficiary scope to the bottom 70 percent on the income scale.
The third one is the same as the second except that the benefit amount varies based on a recipient’s current state pension benefit.
Based on these options, the government will draw up its pension reform bill by August for submission to the National Assembly.
Critics say that whichever option is adopted, it would represent a huge setback from Park’s original scheme. This means Park promised more than she could deliver, they say.
That is true. But the government cannot and should not introduce a welfare program that cannot be sustained. This point is especially valid when the economy has lost growth momentum.
As the new pension plan is to be fully financed with taxpayers’ money, a larger pension benefit means a bigger burden on future generations.
According to the committee’s estimate, even when the third option, the least costly alternative, is chosen, pension payouts will total 15 trillion won in 2020.
The government can hardly afford any additional burden as its balance sheets are already severely strained by expanded welfare expenditures and falling tax revenue.
Alleviating poverty among senior citizens is an urgent task, but there is only so much that the government can do when the economy staggers. The government is advised to draft its reform bill prudently.
