A Study of the Discourse on the Reform of Old-age Income Security

Abstract

After National Pension (NP) fiscal calculation was carried out in 2018, various policy combinations have been proposed as a reform plan. However, pension reform has been delayed without finding a consensus between adequate income security and fiscal stabilization. This suggests the need to further the discussion on the reform of the old-age income security, which is being conducted beyond the framework of income replacement rate and contribution rate in the NP. In particular, it is necessary to clarify how different the perceptions established by each reform plan are on the adequate income security and fiscal stabilization. Of importance is to make a more specific policy road-map for the old-age income system based on these identified issues. This allows us to confirm the practical and functional differences in the old-age income security designs. This study aims to enhance the understanding of the background and goals of the reform plans by deriving and sharing various discourse elements set by each plan on old-age income security. The main research results are as follows. First, this study examines the current status of Korea by using the pension system evaluation indicators of the adequacy and financial sustainability proposed by international organizations. As a result, this study identifies serious poverty among the elderly and low net income replacement rate for high income earners due to income redistribution function of the NP. Although the size of future fiscal expenditure is not as large as that of other OECD countries, the issue is recognized that the future generations who must bear the cost are significantly decreasing. In addition, current Korean NP is characterized by a long pension receiving period and a relatively low contribution rate. Second, before discussing the discourse analysis, this study assesses the current status of each major old-age income security system in Korea. The result shows both the NP application rate and take-up rate are gradually increasing. At the same time, the number of beneficiaries of Basic Pension (BP) and the amount of selection criteria are also significantly increasing. Overall, the share of public transfer income among the elderly household income is rising. Third, to analyze the discourse on the reform of the old-age income security system, this study reviews the reform plans in four different aspects – reinforcement of NP, reinforcement of BP, reinforcement of multi-pillar old-age income security system, and occupational pension as a semi-public pension. As a result, the discourse elements of each plan are identified as ‘intergenerational justice’, ‘political feasibility of reform’, ‘equity across classes’, and ‘securing benefit adequacy’. Lastly, we estimate the effect of each policy combination suggested by the ‘National Pension Comprehensive Operation Plan’ and the policy effects of the core discourse. The analyses show that assuming the same contribution period, the reform plan for strengthening the BP is more advantageous to those with low lifetime income, while the plan for increasing the replacement rate of NP is more advantageous to those with high lifetime income. In addition, if the NP is changed to fully earnings-related and the BP is increased (approximately 20% of ‘A’ value), the benefit decreases for those who have joined the NP longer than 16 years, with the extent of the fall in the income replacement rate being greater among low-income groups. Policy suggestions of this study are as follows. Firstly, the implementation of a pension reform should build on a more systematic prospect on the labour market and social insurance blind spots, a review of an adequate income required for old-age, and a detailed evaluation on policy measure and its impact on minimizing the current elderly poverty. Next, some basic directions should be suggested when seeking policy alternatives. First, it is necessary to acknowledge the need for raising the NP contribution rate to an appropriate level. Second, when discussing the seriousness of poverty among the current elderly population, it is important to consider the characteristics of income distribution throughout the life-cycle. Third, when discussing strengthening the BP to cope with the current elderly poverty, it is necessary to design the system in the form of supplementary benefits. Finally, it is reasonable to consider multi-pillar system such as occupational pensions as an alternative to future instability, rather than as a substitute for public pensions.