Pensions in Menghe

Pensions in Menghe currently consist of a three-tranche system. The first tranche is covered by the State Pension System, an individualized account for each worker which is supported by a 10% payroll tax divided evenly between the employer and employee. The second tranche consists of optional retirement programs paid for by employers, and the third consists of state-supported individual retirement accounts.

In all three of these tranches, pension benefits are proportional to an individual's earnings over the course of their lifetime, though the State Pension System includes a minimum benefit level. This corporatist logic rewards employees who have moved into higher-salaried positions, and, in most workplace pensions, those who have stayed with the same firm for a long time. To limit the extent of inequality, individuals earning over ₩400,000 contribute part of their payroll tax to a pooled "solidarity fund" which supplements those with the lowest accumulated benefits.

History

During the 1970s, the Democratic People's Republic of Menghe established a nationwide social security network collectively known as Work-Unit Socialism. Under the country's planned economy, all productive enterprises were owned by the state, and all workers were considered state employees. Every individual of working age was assigned to a "work unit" (Menghean: 작업 단위 / 作業單位, Jagŏb Danwi or Danwi for short), which was responsible for managing their employment and social welfare.

In addition to providing guaranteed lifetime employment until retirement, each Danwi provided employees with a range of free services, including ration tickets, medical insurance, and pension funds. The latter contribution, however, was very small, in part because of the country's underdeveloped status and in part because of the expectation that rural families would care for their retired grandparents.

During the 1990s, Menghe's economic reforms steadily eroded the old pattern of Work-Unit Socialism, as private enterprises emerged on the fringes of the economy and state-owned enterprises were converted into Jachi-hoesa. In 1996, the central government authorized city and metropolitan governments to develop their own social security systems for pensioners as a means of filling in the gap. This led to an opaque web of geographically varying pension schemes, some of which could not transfer benefits if a worker moved to another city and nearly all of which excluded migrant workers from rural areas.

Hoping to correct for this problem, in 2009 the national government introduced the State Pension System, which was to be mandatory for all employers. This system was to be supported through a Payroll tax split evenly between employers and employees. The 2009 law also tied the new pension system to a nationwide retirement age of 61 years for all workers, or 60 years in standard age, replacing the patchwork of prefecture-level and job-specific retirement ages.

Eligibility

As of 2009, the retirement age in Menghe is set at 61 for both men and women. Retirement at this age is not mandatory, but individuals below this age are not permitted to withdraw money from their State Pension Account or Individual Pension Account. Enterprise Pensions can be collected before this age, at the discretion of the employer, but the minimum age for collection cannot extend beyond 61. Notably, this age level is assessed using Standard Age, and equates to age 60-61 using conventionally reckoned years.

Non-citizen residents of Menghe are given a temporary registration number and required to contribute to a State Pension Account, but only individuals who are citizens at the age of 61 (and have been citizens for the preceding 10 years) can collect the State Pension. If a foreign resident passes the Standard Age of 50 without acquiring Menghean citizenship, they continue paying payroll tax but their taxes and past savings are added to the solidarity fund.

Menghean citizens who have worked in Menghe for fewer than 15 years - for instance, those who were unable to find work, or who worked overseas - are also denied the right to collect their accumulated State Pension.

1st tranche: State Pension System

See also: Taxation in Menghe § Payroll tax

Menghe's State Pension System follows a "pay-as-you-go" scheme, in which individuals' benefits are directly tied to the accumulated contributions they made over the course of their lifetime. It is funded through a Payroll tax amounting to 10% of an individual's annual salary, which is split evenly between the employer and employee. Each individual's payroll tax contributions accumulate in a State Pension Account matched with their Citizen Registration Number.

Annual contributions above ₩40,000 are diverted to a "solidarity fund" managed by the central government. If an individual's total pension savings, including enterprise pensions and individual pension accounts, falls below a legally mandated minimum at the age of retirement, money from this fund is used to offset the difference. If the solidarity fund is insufficient to meet a given year's needs, the remaining money is allocated from the central government's budget. The solidarity fund is mainly applied to low-income workers, workers who were intermittently out of work (but worked more than 15 years), and workers who were nearing retirement when the 2009 law establishing State Pension Accounts went into effect.

Once an individual reaches the standard age of 61, they can register to "open" their accumulated fund, including its solidarity payments. The total is then divided into 180 installments, which are distributed on the first day of each month for 15 years. During this time, a pensioner may work part-time, but if they enter a full-time job their payments are suspended temporarily. If a retiree passes away before their fund is entirely used up, the remaining money is returned to the solidarity fund.

2nd tranche: Workplace Pensions

During the 1990s and 2000s, many major employers established their own employee pension plans to replace the old Work-Unit system. This form of supplementary workplace pension is especially common in Jachi-hoesa, state-owned enterprises, and government agencies.

There is no national standard on the composition or eligibility structure of workplace pensions, save for the requirement that the age threshold to receive it cannot be higher than the legal retirement age. Generally, workplace pensions are structured in a way that rewards long-term tenure within the same firm or government agency, and they often follow a two-tier structure in which flexible or unskilled workers are excluded from the program.

Enterprises and government agencies with workplace-pension schemes are still required to contribute to the payroll tax, and employees with workplace pensions can still receive funds from their State Pension Accounts after retirement, but they have reduced eligibility for offset contributions from the solidarity fund.

3rd tranche: Individual Pension Accounts

As an additional hedge against the loss of Work Unit benefits, many individuals set up formal or informal savings accounts to support their well-being in retirement. In 2003, the national government established a new category of Individual Discretionary Pension Accounts to formalize this process. IDPAs are managed by the central government, guaranteed against insolvency, exempted from the capital gains tax, and inflation-indexed, providing greater security than stockpiled cash or individual savings accounts. Conversely, there are strict limits on withdrawing money from the accounts prior to retirement.

Problems and limitations

While the 2009 National Pension Law was hailed as a major improvement over the loose patchwork of systems originally in place, it still has a number of flaws. Even with the solidarity minimum added, State Pension Accounts yield relatively small sums of money each month, and over a third of pensioners live below the relative poverty line. Because contributions are proportional to one's annual salary, the situation is especially difficult for retirees who worked in unskilled or low-paying jobs.

Additionally, while the nationwide pension system was intended to make retirement insurance mandatory and universal, large gaps in the safety net still remain. Widespread audits conducted in 2012 and 2013 found that many businesses engaged in some form of tax evasion, by hiring workers off the books or misreporting salaries. These practices were especially widespread in small firms, rural enterprises, and businesses employing rural-to-urban migrants. Other loopholes are built into the structure of the law: farmers and rural petty merchants, for instance, are counted as self-employed, and are responsible for their own retirement accounts.

Culturally, there is still a strong expectation in Menghe that the children of an elderly individual are responsible for their care and well-being after retirement. This norm has hindered efforts to increase State Pension contributions and expand eligibility, especially in the rural areas where pension evasion is most widespread. In spite of declining birthrates, the trend which originally led the government to favor a pay-as-you-go system over a collectively funded one, the NSCC has continued to advocate a greater reliance on family support for individuals receiving only the minimum pension amount.

Retirement age adjustment

When the National Pension Law was passed in 2009, Menghe had a life expectancy of 73.4 years for males and 75.8 years for females. By 2020, these figures had reached 76.2 and 79.9 years, respectively, and 15.8% of the population was above the standard age of 60. Concerned over the growing burden on the pension system, some government officials have proposed raising the retirement age to 66, or permanently indexing it to 15 or 20 years below life expectancy. The NSCC extensively debated retirement age reform in its 2020 session, but ultimately failed to reach a decision, with the Pensioners' Delegation steadfastly opposing the change. Public opinion polling has also found high opposition among the elderly.

Experts also disagree on whether a higher retirement age would yield meaningful economic benefits. Skeptics of the change argue that it would force companies to keep older workers in their positions for longer, denying job openings to younger and more productive workers. Already, it is common for large companies to "encourage" retirement of workers in their late 50s, by moving them into unimportant positions and offering early-retirement bonuses.

With retirement age reform stalled at the national level, some preefecture-level authorities have taken steps to create more job opportunities for elderly workers, either as a part-time supplement or as an alternative to retirement. The Ministry of Economic Development issued a policy document encouraging changes like these, and offered promotions to leading cadres who achieved high labor force participation among the above-60 population.

See also

• Economy of Menghe
• Economic reform in Menghe
• Taxation in Menghe
• Public housing in Menghe
• Household Registration System (Menghe)