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Title Review of the Military Pension System and Areas of Improvement

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Review of the Military Pension System and Areas of Improvement

This report provides a comparison of the Military Personnel Pension System (MPPS) and Government Employees Pension Service (GEPS) by category such as history and operation system as well as an analysis of their fiscal status and forecast, suggesting areas of improvement for the military pension system.
Since its introduction, the MPPS has been pursuing simultaneous structural changes with GEPS, with identical changes in most areas except for retirement age and pension age. However, although GEPS began to undergo full-fledged reform in 2010, MPPS has been pursuing reform on a delayed schedule. A comparison between the major issues of MPPS and GEPS revealed that although the service period of military personnel is shorter and contribution size is smaller than those of government employees, their monthly pension rate is higher, with a longer average payout period. As a result, the issue of equity between public pensions could rise because the benefit to tax ratio of MPPS is higher than that of GEPS. Furthermore, there is the structural issue related to the military retirement system and high ratio of short-term service leading to pension benefits being granted to a limited number of candidates. In fiscal terms, 3 to 4 trillion Korean won from the national compensatory grant is spent each year to cover the deficits of MPPS and GEPS. While GEPS has a larger national compensatory grant, MPPS receives a three times higher per-capita national compensatory grant than GEPS per pensioner. Also, a long-term fiscal projection of the MPPS suggests that the weight of national compensatory grants from total expenditures as well as per-capita national compensatory grants will continue to increase.
Compared to GEPS, MPPS has been maintaining a more advantageous pension system by providing pensions payable upon retirement and adding incentives per battle period as part its recognition of the unique circumstances of military personnel and the need for national compensation. When moving forward to discuss improvements of the MPPS, such unique circumstances should be taken into consideration. However, should the existing system remain intact without making any changes corresponding to GEPS reform, even after considering the uniqueness of military personnel, MPPS benefits will continue to increase and have an adverse effect on national fiscal soundness.
Therefore, it is necessary to begin discussions on reforming the MPPS, such as by ensuring its fiscal stability, pursuing equity with GEPS, and improving the structure of MPPS benefits. After beginning discussions on MPPS reforms, raising the contribution rate, increasing the number of contributors and extending the contribution payment period could be discussed as measures to increase MPPS revenues. To reduce expenditures, measures such as reducing the pension payment increase rate and rate of payment for the families of deceased service personnel, as well as adjusting the pension age could be considered. However, the process of reviewing various options to improve the MPPS should be prudent, involving its long-term fiscal estimates, and MPSS must ensure sustainability by fully collecting the suggestions of relevant stakeholders.

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