To enhance the acceptance of the National Pension System among contributors, there is a call to strengthen the equity between lifetime contributions and benefits. Critics argue that the current benefit structure, which does not consider the fairness of premium payments and is overly focused on income redistribution, undermines the trust in the National Pension System, necessitating innovative improvements.
On September 2, the Korea Employers Federation (KEF) released a report titled 'Innovative Measures for Enhancing Public Trust in the National Pension System,' outlining structural improvement tasks across the system, including finance, contribution systems, benefits, and fund management.
With the revised National Pension Act, which includes a gradual increase in premium rates and a higher income replacement rate, now in effect, the business community argues that to increase contributors' acceptance of the system, it is essential to secure financial stability while enhancing the equity between lifetime contributions and actual benefits.
A KEF official pointed out, "Although the National Pension Act was amended last April to clarify the government's payment guarantees, a public perception survey conducted in November of the same year revealed that 55.7% of respondents did not trust the National Pension System."
The KEF identified several key reasons for the lack of public trust in the National Pension, including: a financial foundation that does not reflect demographic changes, a dual premium assessment and collection system based on membership type, a pension reduction system that does not align with social and economic changes, a benefit structure overly focused on income redistribution, and a lack of expertise and independence in fund management governance.
To address these issues, the KEF suggests implementing automatic adjustment mechanisms to enhance financial stability and intergenerational equity alongside the reform of parameters. When determining annual pension benefit increases, it is necessary to consider demographic and economic variables such as inflation, increased life expectancy, and a decrease in contributors.
Improvements are also needed in the premium assessment and collection system for local contributors. Unlike workplace contributors, local contributors may underreport income or fail to pay premiums consistently. While maintaining the current principle of reported income, it is necessary to strengthen the linkage and verification with tax data from the National Tax Service and to adjust the standard monthly income promptly when there is a significant discrepancy between reported and verified income, suggesting a 'hybrid assessment system.'
The pension reduction system should also be improved to reflect social and economic changes. The reduction system for old-age pensions for current employees and the reduction of overlapping benefits between old-age and survivor pensions do not adequately reflect the changed social and economic conditions or the lifetime contributions of members. Therefore, it is necessary to abolish or significantly relax related reduction systems to enhance equity between contributions and benefits.
Furthermore, the benefit structure should be redesigned to ensure that those who contribute more receive more. The current National Pension System reflects equal benefits (A value) and proportional benefits (B value) at the same ratio (50:50), leading to significant disparities in income replacement rates based on income levels. The KEF recommends reducing the proportion of equal benefits (A value) and increasing the proportion of proportional benefits (B value) to strengthen the link between contributions and benefits, thereby encouraging diligent premium payments and long-term participation.
Additionally, an independent fund management governance centered on investment experts should be established. The Fund Management Committee, the highest decision-making body of the National Pension Fund, is currently composed of stakeholders, including government and contributor representatives, which exposes it to potential external decision-making interference. There are calls to restructure the committee into a permanent body focused on investment and financial experts and to establish a system capable of managing the fund professionally and responsibly.
Lee Sang-cheol, head of the KEF's Employment and Social Policy Division, stated, "The low trust in the National Pension, despite the parameter reforms, indicates the need to reassess the fundamental principles and overall operational system of the program. We must improve the system to ensure equitable burdens between generations and that contributors' efforts are fairly reflected in benefits, while also enhancing the professionalism and independence of fund management to transform the National Pension into a system that all generations can trust and rely on."
* This article has been translated by AI.
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