Fiscal Projection of the Military Personnel Pension Scheme over 2018-2050
Published on 26 November 2018
Published by Administrative Cost Estimates Division of the Estimates and Tax Analysis Department
This report provides a projection of the Military Personnel Pension (MPP) fund over 2018-2050 according to the current MPP scheme as well as a forecast of the financial changes in line with the policy issues related to the military pension fund.
Since its implementation until the 2000s, the MPP scheme has been evolving identically with other types of occupational pension schemes in most ways except for stipulations related to rank-specific retirement age and pension age. However, unlike other occupational pension schemes that began comprehensive reforms in 2015 such as the Government Employees Pension, the MPP has maintained its current scheme without reform.
The MPP finances are run through a fund. The MPP fund revenues consist of pensioner’s contributions, government contributions and other revenues; and expenditures consist of retirement payments, retirement allowances, accident compensation payments and miscellaneous payments. As of the 2017 settlement of accounts, revenues totaled 1 trillion 635.4 billion Korean won while expenditures totaled 3 trillion 66 billion won, with a fiscal account deficit of 1 trillion 430.6 billion won.
NABO used an MPP fiscal projection model developed in-house in 2018 to forecast the revenues, expenditures and fiscal balance of the MPP fund over 33 years from 2018 to 2050, presuming the current MPP scheme is maintained. The MPP’s revenue, expenditure and fiscal balance in 2050, when converted to 2018 constant prices, amount to a deficit of 2 trillion 983.9 billion won, 6 trillion 695.3 billion won and 3 trillion 711.4 billion won, respectively.
Meanwhile, an overview of the policy issues has been provided in this report based on the main content of the 4th Occupational Pension Reform (2015), along with a forecast of the revenues, expenditures and fiscal balance of the MPP depending on the application of policies. The policy agenda items relevant to revenues are 1) a staged increase in contribution rate. The agenda items relevant to expenditures are 2) temporarily freezing the pension pay rate at its current level for 5 years; 3) lowering the pension pay rate for families of the deceased down to 60% regardless of the date of the pensioner’s appointment; and 4) a simultaneous application of the temporary freezing of pension pay rate and a pay cut for families of the deceased. The final item is 5) the consolidated application of policy agenda items relevant to revenues and expenditures.
According to fiscal forecasts of each policy agenda item, lowering the pay rate for the families of the deceased led to a 0.4% reduction in fiscal balance compared to the fiscal projection, exhibiting a minimal effect in terms of fiscal balance enhancement. The consolidation of policy agenda items had the strongest effect in terms of fiscal balance enhancement, reducing the fiscal deficit by 15.3% on average each year. The consolidated policy agenda items also exhibited the highest rate of cumulative savings in terms of fiscal balance, reaching 13 trillion 701.9 billion won.
Moving forward, such outcomes of the fiscal projection are expected to be utilized in supporting legislative activities when discussing the MPP scheme, such as when reviewing the fiscal changes incurred by institutional improvements as well as opinion collection and decision making processes of relevant stakeholders.