Pension Reform Needs a New Direction

The National Pension system has long been criticized for its problems, yet time continues to pass without any clear solution. Fund depletion is an expected reality, and the political sphere is offering only stopgap measures such as raising contribution rates or adjusting the pension eligibility age. What is needed now is not this kind of passive response, but a fundamental redesign of the system as a whole.

The structure of the system itself is the problem. The National Pension is a system that tells everyone to prepare for the future in the same uniform way, so naturally everyone remains dissatisfied. The state sets the standards, and the people are simply expected to follow them. In this process, individuals’ diverse lives and choices are not taken into account. We must move beyond the outdated premise that retirement preparation is something “the state takes care of” through pensions.

The practice of shifting the burden onto future generations is also a serious problem. If the current structure is maintained, a smaller population will ultimately have to support a larger one. The current generation receives pensions, while the next generation is left holding the debt. If this continues, the pension system will lose credibility and inevitably become a flashpoint for intergenerational conflict.

Infringement on property rights cannot be ignored either. The National Pension forcibly collects part of people’s income, yet gives them almost no say over where or how that money is used. People are deprived even of the opportunity to manage their own money, while having no certainty about how much they will receive later. This clearly restricts individuals’ economic freedom.

Individual choice must be at the center. Each person has a different way of life and different goals. Some invest in assets, while others prepare for retirement through homeownership or private pensions. A pension system that does not recognize this diversity will ultimately leave everyone dissatisfied. Pension policy, too, must offer broader individual choice.

Overseas examples also offer useful hints. Singapore operates a representative individual-centered pension system. Its Central Provident Fund (CPF) is designed so that citizens save a certain portion of their income in accounts under their own names and can use those funds autonomously for various purposes such as home purchases, medical expenses, and retirement living. Citizens manage their funds according to their own needs, while the government plays only a supplementary role within certain standards. It is a model that harmoniously combines autonomy and responsibility.

New Zealand, by contrast, operates a “basic allowance” model in which public pensions are paid equally to all citizens. A fixed amount is provided regardless of individual income, and people are encouraged to prepare the rest on their own through private pensions or savings. This kind of structure, in which the state guarantees only the basics while respecting autonomy and choice, is regarded as far more sustainable.

Korea, on the other hand, forces citizens to join and pay into the pension system while giving them no authority over how it is managed or paid out. A system that restricts citizens’ freedom while claiming the state will take full responsibility is ultimately bound to fail. It can guarantee neither fiscal sustainability nor the restoration of public trust.

The direction of reform is clear. We should not merely adjust the numbers; we must change the system’s basic orientation. The sustainable path is to move away from a state-led structure to one centered on the individual, to scale pensions down from “social insurance” to a “social basic,” and to encourage individuals to make the rest of their own preparations.

This is now an era in which individuals, not the state, design their own futures. The National Pension must follow that trend. If we are to move from a society that depends on a fixed framework to one in which people determine their own lives, pension reform must be the starting point.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 연금개혁 방향 틀어야

Author: Sung-no Choi

Date: 2025-04-14

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27516