There are four public pension schemes in Korea: the National Pension, the Civil Servants Pension, the Military Personnel Pension and the Private School Teachers Pension. Four public pension schemes is financed on partial funding basis modified for the provision of a relatively small fund targeted to correspond, at the end of any year, to twice or three times the total expenditure of the ensuing year. Thus, like comparable social insurance programs of other countries, Korean pension schemes is not actuarially funded.
The aim of the present paper is to provide policy directions which maybe helpful financing of public pension schemes in Korea. The concept of actuarial funding carries with it the concept of an unfunded actuarial liability arising from the lack of contributions since the inception of he schemes at the rate below normal rate.
The results suggest a number of conclusions. These maybe summarized as follows ;
- If Korean Pension Schemes were actuarially funded, the total unfunded liability of four Korean Pension Plans at the end of 1998 would be equal, on the basis of the ultimate main assumptions of this paper, to 209 trillion won.
- Because of the difference between contributions at the hypothetical entry age normal actuarial cost rate and contribution at actually collected, the unfunded actuarial liability may be expected to grow each year in the future. The burden of future generations also increasingly will grow.
- Therefore Public Pensions should be reformed as soon as possible. Especially financing methods should be changed to full funding from partial funding.
- Opened Aggregate Cost method may be suitable as new financing method which is a sort of full funding system and applicable to public pension plan.
|