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KMID : 1124020050210020229
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Korean Social Security Studies
2005 Volume.21 No. 2 p.229 ~ p.256
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A critical review on the validity of NDC pension system as a reform alternative
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Yun Suk-Myung
Kim Moon-Kil
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Abstract
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This paper critically reviews Notional Defined Contribution system(NDC) which in recent years has been drawing attention worldwide as an alternative public pension reform. This paper focuses on analyzing the pros and cons of NDC and its implications. Countries that have Bismarckian public pension systems, which are highly earnings-related and generous in benefits, face serious financial imbalance, especially as their PAYG DB systems reach maturity. For those countries with very limited policy instruments in perspective of financial stability, NDC-type pension reform could be an effective alternative. But if the government and politicians who are responsible for pension policies carry out only a superficial reform just to minimize political resistance without fully implementing the key features of NDC, there will be a need for further reform over time. In this case, it will be difficult for the government to convince those with pension rights when it has failed to pay their expected pension benefits. This may put the pension system itself into jeopardy. Despite such difficulties, NDC pension system can be thought of as an alternative to the Bismarckian public pension which suffers from serious financial imbalance. This paper suggests that NDC pension system can be considered as a reform alternative to Korea`s special occupational pension system including its financially-beleaguered civil servants pension system.
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KEYWORD
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NDC system, PAYG DB system, (pension) reform
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