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KMID : 1124020220380030355
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Korean Social Security Studies
2022 Volume.38 No. 3 p.355 ~ p.391
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The trilemma of the National Pension scheme: Searching for a solution
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You Jong-Sung
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Abstract
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This study shows that it is impossible to achieve financial sustainability of the National Pension scheme through parametric reform of increasing contribution rate and decreasing benefits. It faces a trilemma to maintain financial balance while achieving both income maintenance and income redistribution for the elderly. Since income maintenance is the essential function of the National Pension scheme as a contribution-based social insurance, we have to give up either financial balance or income redistribution. The study finds that it is more realistic to separate ‘A benefit’ with redistributive function from the National Pension scheme. ‘A benefit’ can be integrated with the Basic Pension scheme and transformed into a basic income-type of universal basic pension or a negative income tax-type of basic pension in which the benefit is reduced by a certain percentage of one’s market income. The National Pension scheme can be transformed into an actuarially fair social insurance with benefit-cost ratio of 1 that strictly links contribution to benefit.
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KEYWORD
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National Pension scheme, Basic Pension scheme, trilemma, structural reform, parametric reform, A benefit, B benefit
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