Basic pension reform must rise above political calculations

Yun Suk-myung

The author is an honorary research fellow at the Korea Institute for Health and Social Affairs and chair of Reset Korea Pension Reform Subcommittee.

The Lee Jae Myung administration’s basic pension reform is going astray. The Ministry of Health and Welfare’s proposal, prepared at the president’s direction, has serious flaws. It would cost more than the current system while doing little to substantially reduce Korea’s older adult poverty rate, the highest among Organisation for Economic Cooperation and Development (OECD) members.

There has been broad agreement that paying the basic pension to 70 percent of people aged 65 or older is unsustainable as the elderly population surges. Yet the government’s proposal would increase the burden. Its goal was to give more to those at the bottom and less to those at the top, but it barely addresses the former and avoids the latter entirely.

Eligibility would remain at 70 percent, while the bottom 30 percent would receive an additional 30,000 won ($22) a month. That seemingly modest change would require 2.5 trillion won more next year, including a net increase of 600 billion won attributable to the reform.

The OECD has long pointed to problems with Korea’s basic pension because substantial spending has failed to significantly reduce older adult poverty. Few OECD countries operate a universal tax-funded basic pension alongside a contributory pension requiring at least 10 years of payments. Countries including Sweden, Norway and Finland replaced universal basic pensions with programs targeting vulnerable seniors.

Countries that still have universal basic pensions generally make them the sole public pension or require contributions for a specified period. Korea’s 2025 National Pension Act revision already increased the burden on future generations. Increasing it again through the basic pension risks worsening generational conflict. That is why the Future Generation Network (translated), a youth organization affiliated with the National Pension Research Association, criticized the proposal for “increasing what is given while conveniently omitting what should be reduced.”

The ministry initially prepared a plan to gradually narrow eligibility while increasing benefits for vulnerable older adults. Political difficulties facing the government and ruling party appear to have blocked that approach. Because reform requires legislation, the National Assembly now has a crucial role. Yet lawmakers could make matters worse by further increasing benefits at the bottom without reducing payments at the top.

More support for poorer older adults is necessary, but only if accompanied by reductions for better-off recipients. Resistance appears to come partly from people in their 50s, a key constituency for the government and ruling party, who expected to receive the pension but could lose eligibility under tighter targeting.

For those approaching retirement, laws should instead promote postretirement re-employment. Longer employment would provide wages and severance pay while extending National Pension contribution periods and increasing eventual benefits.

Support for poorer older adults also needs clear principles. Simply raising basic pension benefits creates fairness problems for diligent National Pension contributors. The average National Pension benefit is 730,000 won a month, while half of recipients receive 500,000 won or less. If benefits for low-income basic pension recipients rise sharply, they could exceed National Pension payments.

The number receiving enhanced benefits should therefore be minimized, while assistance should be divided between cash and in-kind support such as necessities and housing and medical vouchers.

The government’s proposal to extend the basic pension to low-income recipients of the government employees' pension system is also problematic. Unlike the National Pension, which is paid only as an annuity, the government employee system allows benefits to be divided between pensions and lump-sum payments. Extending basic pensions to cover recipients of the government employees' pension system and the teachers’ pension system could encourage people to adjust the ratio between annuity and lump-sum benefits to qualify.

Politicians should remember that voters are not limited to middle-aged and older generations. The controversy followed a ruling party lawmaker’s suggestion that decommissioned buses be converted into housing for young people amid a severe shortage of affordable homes. The proposal drew a fierce backlash from young people who said they wanted decent, conventional housing, not makeshift accommodation. Against that backdrop, along with proposals to invest 1 percent of the National Pension Fund in public rental housing, another basic pension amendment that increases the burden on younger and future generations could provoke intense anger.

Political groups that alienate young people should ask themselves whether they have a future. Basic pension reform must be designed around sustainability, poverty reduction and intergenerational fairness, not short-term electoral calculations.

With Korea aging at extraordinary speed, postponing difficult choices will only make later adjustments increasingly more expensive, politically contentious and unfair to younger workers who must finance the system.