Research Report
A Legislative Study on the Reform of the Public Pension System
I. Background and Purpose of Research
○ Rapid changes in population structure due to low birth rates and aging not only seriously threaten the stability of the public pension system, which is the basis of Korea's retirement income security system, but also intensify discussions on reform.
○ Although everyone agrees on the need to reform the public pension system, it is not an issue that will be decided in the short term as various opinions are being raised due to complex interests in the issue and direction. More effective reforms can be achieved only when they are based on basic research from a legal perspective to initiate social discussions in earnest.
○ From the perspective of individual retirement income security, only the national pension, whose funds are directly managed by the government, can be considered a public pension. However, the basic pension also has an income redistribution function as a form of cash benefit based on national taxes, so we are to conduct research by including it in the public pension in a broad sense.
○ To this end, it is necessary to first analyze the main issues of the pension law, focusing on the ｢National Pensions Act｣ and the ｢Basic Pension Act｣, and derive legal issues for reforming the public pension system by referring to the discussions of the Special Committee on Pension Reform of the National Assembly.
○ To this end, it is necessary to first analyze the main issues of the pension law, focusing on the ｢National Pensions Act｣ and the ｢Basic Pension Act｣, and derive legal issues for reforming the public pension system by referring to the discussions of the Special Committee on Pension Reform of the National Assembly.
○ Based on the analysis, we aim to provide basic data for more in-depth discussions on pension reform through comparative legal analysis of overseas pension reform cases and survey analysis of issues and improvement directions for pension reform (expert FGI and surveys of the general public).'
Ⅱ. Contents
▶ Current status and legal structure of the public pension system(Chapter 2)
○ Currently, any Korean citizen aged 65 or older can apply for the basic pension, and if an income group belonging to the bottom 70% of the entire elderly population receives a certain portion of the national pension, the amount is reduced in connection with the equal portion of the national pension.
○ The national pension is mandatory for those engaged in income-generating work activities between 18 and 60 years old (maximum age for subscription is 59). Basically, both wage earners (employees) and self-employed people (farmers and fishermen, commercial self-employed people in urban areas) can join.
○ Since the national pension premium is determined according to legal standards in proportion to the individual's income, the national pension is also referred to as an earning-related pension. Currently, the pension premium is determined by the pension premium rate according to the subscriber's standard amount of monthly income.
○ The national pension is funded by subscribers' premiums, and the basic pension is funded by taxes, so a decrease in the working-age population due to demographic changes may make the financial management of both pensions difficult.
○ According to the results of the 5th National Pension financial estimate, the funds are expected to run out in 2055.
○ On the other hand, Korea's elderly poverty rate is very high compared to the OECD average, but the national pension's income replacement rate is approximately 38%. Discussions on reform of the public pension system due to population aging are gaining momentum as criticism over the low income replacement rate increases.
▶ Analysis of overseas cases on reform of the public pension system(Chapter 3)
1. U.K.
○ After 2002, the UK's retirement income security system consists of the Basic Income Security System (Pension Credit) on the 0th layer, the Basic State Pension (BSP) on the 1st layer and State Second Pension (S2P) on the 2nd layer for public pension, and the individual pension on the final 3rd layer
○ With the introduction of the retirement pension (National Employment Saving Trust: NEST) for the low- and middle-income class in 2008, the reform of the public pension system was promoted in 2014, and the State Second Pension (S2P) was converted to the New State Pension (NSP) in 2016. Currently, there is a retirement income security system in which the 2nd layer consists of the NSP, which is a public pension, and the NEST, which is a private pension and the 3rd layer is composed of a personal pension.
2. Germany
○ After World War I and World War II, major pensions have been continuously reformed. With the introduction of the Basic Security System for the Elderly and the Disabled (Grundsicherung im Alter und bei Erwerbminderung: GAE) in 2001 to alleviate poverty for low-income seniors aged 65 or older and the disabled who have difficulty living on pension alone, the social assistance class on the 0th layer was strengthened, and Lister Pension. With the introduction of the (Riester-Rente) system, the current three-layer structure was formed.
○ The 1st layer is a public pension layer similar to Korea's national pension. In German, it is called statutory pension insurance (Gesetzliche Rentenversicherung). Currently, workers aged 16 to 65 in Germany are required to join it.
○ In 2005, the Rürup pension (Rürup-Rente) was introduced as a basic pension (Basisrente) for self-employed people, locating it on the 1st layer.
○ The corporate pension and Lister Pension, a certified personal pension, are located on the 2nd layer, and the private pension on the 3rd layer refers to the personal pension layer excluding the 1st and 2nd layers.
3. France
○ France's social security system started from a mutual aid cooperative, so when the social security system was introduced after the war, Laroque, who was the then head of the Social Security Bureau, attempted to integrate it into a single system, but it was not completed, leading to differentiation and development into the current regional system.
○ Like Germany, France operates a social security system based on social insurance. Unlike Germany, however, France introduced a social security tax(ITAF) to secure stable financial resources in addition to subscribers' insurance premiums as the main financial resources of the social security system.
○ As the budget deficit of social insurance worsened after the 1970s, a new social security tax paid by all citizens was established from the perspective of solidarity between the state and the people, rather than solidarity by occupation through the premiums of workers in each occupation in order to solve the deficit.
○ In 2023, the Macron government promoted pension reform to ensure sustainability of pension finances due to aging. A reform plan was presented with the main points of gradually extending the statutory retirement from 62 to 64 and gradually extending the period of social insurance premium payment from 42 to 43 years by 2027 to receive 100% old-age pension, and a constitutional trial was filed against it.
○ In response, the Constitutional Court ruled that the content justification for raising the retirement pension age was constitutional, and that the Social Security Financing Amendment Act was partially unconstitutional, acknowledging its flaws in failing to meet the requirements for formal legitimacy that require deliberation within the National Assembly.
▶ Issues and direction of reform of the public pension system(Chapter 4)
○ As a principle of reforming the public pension system, the principle of solidarity has a constitutional basis and can be regarded as more structured as a principle through the principle of the social state. Article 10 of the Constitution, the right to live a decent life(Article 34), and the provisions on basic social rights(Articles 31 and 36) and provisions on social market economic order(Article 119 of the Constitution) can also be mentioned as constitutional bases.
○ Through the precedents of the Constitutional Court, the principle of solidarity can be regarded as two main aspects: a personal aspect and a national aspect.
○ As the subscriber's obligation, personal responsibility includes both individuals and business owners in that it started from solidarity for the loss of labor. In addition, the insurance community to which all of these subscribers belong can be said to a concept that includes solidarity between classes of subscribers as a society.
○ The first element of the principle of solidarity is universality including all citizens, equity of contribution according to ability of payment, and equality of salary according to need.
○ In public pensions, not only is the obligation of subscribers to pay important, but the national obligation to intervene and adjust to ensure that the income redistribution effect can be achieved through the premiums paid can also be seen as an important factor.
○ The obligation to join a public pension can be seen as an inevitable element because the social insurance method was chosen, and should be viewed as a functional premise for maintaining the social insurance method rather than a content component of the principle of solidarity.
○ Through preliminary literature analysis by field on the issues and directions of reform of the public pension system to be reviewed in the future, the main issues and directions were selected as follows:
▶ Expert FGI and public survey on the reform direction of the public pension system (Chapter 5)
○ For a more in-depth analysis of the reform issues and direction of the public pension system, expert FGI was conducted through the following process.
○ In order to derive balanced FGI results, experts in the fields of social policy and social welfare who conducted pension-related research were also included in the response group. Since the participating experts’ areas of expertise are different and the detailed areas they are involved in within the pension system are different, expert meetings and workshops are held continuously in advance to provide a venue for sharing accumulated pension knowledge and information to enable the discussions on comprehensive reform of public pensions.
○ Next, we conducted a survey targeting the general public to analyze their awareness and preferences for the reform direction of public pension system and provide basic data for more effective alternatives.
○ Through this process, a public survey on the reform direction of public pension system was conducted as an online survey targeting adult men and women aged 18 or older nationwide, and the survey period was approximately 10 days from September 15 to September 25, and a total of 1,117 valid response samples were secured.
Ⅲ. Expected Effects
○ Comparative cases from overseas countries regarding the reform direction of public pension system can provide the implications for future reform discussions
○ Present issues and directions for reform in addition to a legal perspective in discussions on pension reform where policy decisions are emphasized for effective planning materials
○ Provide basic data for future reform discussions by presenting statistical data that can analyze awareness and preferences for the direction of reform through expert opinions and public surveys on the reform of the public pension system.