Populist pension bills
The main opposition Democratic Party of Korea (DPK) has drafted a bill aimed at increasing the basic pension for the elderly to 400,000 won ($287) per month from the present 300,000 won. The party has also presented another bill that the basic pension should be paid to all senior citizens aged 65 and older regardless of their income levels. Currently, only elderly people in the bottom 70 percent of the income bracket are eligible for the basic pension.
The two bills stand a high chance of getting approval from the National Assembly as the DPK holds the majority ― 169 seats out of the total of 300. Furthermore, the government and the ruling People Power Party (PPP) plan to work out measures by next June to keep President Yoon Suk-yeol's campaign promise to raise the monthly basic pension to 400,000 won. The Yoon administration is considering implementing his pledge in 2024 when next general elections are scheduled.
The provision of a larger pension is necessary given that the country's poverty rate for the elderly stands at 39 percent, the highest among the OECD member countries. The proposed monthly pension of 400,000 won does not appear to be good enough, particularly for many senior citizens living below the poverty line.
Nevertheless, the government and the rival parties cannot avoid criticism for trying to lift the pension payment as part of their populist efforts to woo voters in major elections. Policymakers and lawmakers should first figure out how to foot the bill before increasing the pension payment. A populist move could lead to a budget deficit, deepening fiscal woes.
Now we need to pay heed to an OECD recommendation that benefits for seniors should be better targeted toward the elderly with the lowest incomes to alleviate poverty. In an economic survey of Korea published this month, the OECD calls for wide-ranging reforms involving the pension system, as well as labor and education, to prepare for the effects of the falling birthrate and rapidly aging population. Thus, the government should take a cautious approach to increasing the pension payment.
The Korea Institute for Health and Social Affairs expects the annual pension payment to increase by 12 trillion won to 52 trillion won in 2030 if the monthly payment goes up to 400,000 won. The estimated sum is likely to double to 102 trillion won in 2040 due to an upsurge in the elderly population.
Another problem is that recipients of the National Pension Fund, which is exclusive to salaried workers, cannot help but feel a sense of deprivation because they are not eligible for the basic pension for the elderly. Salaried workers complain that they pay pension premiums every month to enjoy pension benefits after retirement, while basic pension recipients receive benefits without contributing to the pension fund.
Retired workers currently receive an average 587,000 won in pension per month. However, a couple receiving the basic pension could get as much as 640,000 won per month if the DPK-initiated bill becomes law. It is unfair for a free rider to get paid more than those who have paid pension premiums. For this reason, it would be better to make the basic pension available selectively to poor senior citizens ― for example, those at the bottom 50 percent or 30 percent of the income bracket. It is important to strike a balance between the welfare of the elderly and fiscal sustainability.
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