Public Pension Reform and Long-term Projections

Published on March 31, 2023
Published by Social Cost Estimates Division

   This report presented the main issues and measures of pension reform, and fiscal projections for the public pension schemes in Korea. It is composed of four volumes and the detailed contents of each volume are as follows:
   Volume I summarized the contents of the three volumes of reports to be described later. First, the report reviewedthe current status of each pension scheme and the overarching issues of pension reform focusing on three key areas: fiscal sustainability, effectiveness of old-age income security, and equity between four schemes. Next, it provides the fiscal projection results for each scheme. The projections covered the impact of adjustments in the pension parameters such as the insurance premium rate, income replacement rate (pension payment rate), and the annuity reception starting age on the finances of the four public pension schemes. Also, it presented fiscal projections under the scenarios of assuming national pension reform, basic pension restructuring, and the integration of four public pension schemes.
   Volume II identified implications for pension reform in Korea by looking into the public pension reform cases in five advanced countries: Germany, Canada, Japan, Sweden, and the United Kingdom. Since these countries experienced slowing economic growth and demographic changes before Korea did, they have already completedseveral rounds of pension reforms. Although each country has a different policy environment, this report reviewed reform plans that had been discussed as well as how they reached public consensus, and drew the implications for Korea.
   Volumes Ⅲ and Ⅳ reviewed major issues and measures of pension reform by respective schemes. Toanalyze the expected effects and considerations for each reform measure currently being discussed, relevant literature and data submitted to the National Assembly by the relevant government offices were reviewed. Next, the report suggested results of the fiscal projection and fiscal assessment index analysis for each scheme for the next 70 years (2023-2093). Fiscal projection and analysis were conducted under the baseline, assuming the current system remains unchanged and several reform scenarios. Fiscal projections of this report were based onthe NABO model, applying macroeconomic variables produced by NABO, as well as system variables that reflected past trends by each scheme.
   More specifically, Volume III analyzed, among the old-age income security systems targeting the general public, the national pension and basic pension. The national pension and basic pension are implemented in the public realm while the retirement pension, a statutory scheme, services the private sector. The reason these three schemes were examined together is that they need to be considered comprehensively when discussing a pension reform: they play complementary roles within the framework of a multi-pillar old-age income security system in Korea.
   Volume IV covered three occupational pension schemes of the Government Employees Pension, Teachers’ Pension, and Military Pension. Occupational pensions share similar aspects in their design, thus are often examined together in reform discussions. Nonetheless, due to the peculiarity of each scheme, this report reviewed reform discussions by respective schemes. Also, the report presented the fiscal projection results under a reform scenario assuming that the main parameters of occupational pensions and national pension are adjusted to be the same.