Inadequate Policy or Operational Failure? The Potential Crisis of the Korean National Pension Programme

The Korean National Pension Programme is one of the main pillars of the Korean welfare state. From its introduction in 1988, the Programme had come to include 26.8 per cent of the economically active population and had accumulated a pension fund equal to 24 per cent of government expenditure by 1994. Behind such a promising facade, the Korean National Pension Programme is likely to face financial crisis without a major reform. This paper seeks to answer the question as to whether the crisis will arise due to inadequate policy design or to operational failure. The latter cause may require privatizing the Pension Fund in order to operate more efficiently, while the former one would demand rectifying the defects of policy design. This study argues that the crisis is strongly related to inadequate policy design, which promises generous pensions and at the same time requires only a small amount in contributions; although there have also been operational inefficiencies in running the programme. It also argues that inadequacy in policy design stemmed from developmentalism embedded in the Korean welfare state, which regards the National Pension Programme mainly as a measure for mobilizing cheap capital. In conclusion, this paper argues that the Korean welfare state, created in the era of economic development, is transient in nature and that it needs a major reform not only to contain the cost but also to meet the growing demand for social welfare.