KOREA: Bonanza for Low-Income Seniors - Where's the Money?

SEOUL (The Korea Herald), June 8, 2006: An editorial in The Korea Herald comments that the Government's latest pensions plan is flawed. The latest government proposal on the reform of the national pension system falls short of solving its fundamental problem. It clearly shows that the government is simply seeking an expedient political compromise at the expense of ensuring the pension scheme's financial health, says the newspaper. The proposal, prepared by the Health and Welfare Ministry, calls for raising subscriber contributions from the current 9 percent of their earnings to 12 to 13 percent by 2030. Post-retirement payments will be reduced from the present 60 percent of their average earnings to 50 percent in the first stage and 40 percent eventually, according to this leading newspaper. That is a palpable retreat from the original government plan, which called for raising premiums to 15.9 percent, while lowering payments to 50 percent. Subscribers will now pay less than under the original plan, which is perceived as an attempt to ease opposition from the public and curry favor with voters. Obviously, the government is taking the less painful path. A bigger cause for concern is the plan to disburse a monthly payment of 80,000 won to senior citizens in the low-income bracket. This is another political compromise, apparently aimed at appeasing the Grand National Party. The opposition party has insisted on the introduction of a more generous universal payment for all those aged 65 or older. The biggest problem with the plan is that the government still has no idea where the money, estimated at 2 trillion won, will come from. The editorial says: One more point of serious concern is that the latest pension reform proposal was not accompanied by a plan to simultaneously tackle the problems faced by the pension systems for retired civil servants, professional soldiers and teachers. The three pension schemes, which offer more generous benefits than the national pension system, are already soaking up huge sums of taxpayer money. Last year, the civil service pension fund alone swallowed 197.2 billion won from government coffers. An overhaul of the national pension system is meaningless unless similar steps are taken to improve their existing financial status. Copyright Herald Media INC. All rights reserved.