W2.4 Tln Needed to Offset Civil Servants` Pension Deficit

W2.4 Tln Needed to Offset Civil Servants` Pension Deficit. September. 30, 2009 23:22. peacechaos@donga.com cha@donga.com.

More than two trillion won (1.68 billion U.S. dollars) in public funds will be needed to offset next year’s expected deficit in the civil servant pension fund, a government report said yesterday.

The report by the Strategy and Finance Ministry and the Public Administration and Security Ministry blamed the estimated red figure on a pension system in which subscribers “pay less but receive more.”

Even if the National Assembly approves a revision to the Civil Servants’ Pension Act on cutting payments and increasing premiums, the government will have to spend 700 billion won (589 million dollars) more than projected.

Criticism is mounting over whether taxpayers’ money should offset the snowballing deficit of the civil servants’ pension, which is expected to rise to tens of billions of dollars, especially in the wake of the consolidated government employees’ union joining the militant Korea Confederation of Trade Unions.

The amount of state funds to be used to offset the pension deficit will increase to 2.4 trillion won (2.02 billion dollars) next year, up 21 percent from this year’s 1.99 trillion won (1.6 billion dollars). The cumulative sum to offset the deficit surpassed the one-trillion-won mark for the first time last year, at 1.43 trillion won (1.2 billion dollars).

The two ministries after consultations set aside 823.9 billion won (690 million dollars), or 34 percent of the money to be spent next year to offset the deficit, from next year’s budget. The remaining 1.58 trillion won (1.3 billion dollars), or 66 percent, will come from tax revenues collected by provincial and municipal governments from residents and companies.

The deficit in the public workers’ pension is snowballing because the ratio of its pension payments is nearly twice that of the national pension. The number of civil servants who receive the pension is also growing rapidly and will hit 300,000 next year.

Even if the latest regular session of the National Assembly approves a revision to the Civil Servants’ Pension Act submitted in November last year, the Public Administration and Security Ministry says the amount needed to offset the deficit will reach 1.7 trillion won (1.4 billion dollars).

This figure represents a discrepancy of about 700 billion won (589 million dollars) from the announcement made in September last year on a reduced compensatory amount of one trillion won (844 million dollars) in 2010. The announcement was made by the private-public joint committee on government employees’ pension development after it finalized the revision bill, which seeks to cut pension payments 10 percent and raise premiums in phases.

A Public Administration and Security Ministry official said, “The pension premiums were set on the assumption that the pay of government employees would increase a yearly average of 6.7 percent this year and the next, but pay freezes have raised the deficit.”

“Pension premium incomes didn’t increase but the number of pensioners did. As such, the government will have to increase the amount it spends to offset the pension deficit.”