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History

The Government Employees Pension Act has been revised more than 30 times since its introduction. Over this period, the revisions made to the GEPA can be split into two phases before and after the early 1990s. From its establishment until the early 1990s, changes focused on expanding the scope of pension benefits. Revisions made since the mid-1990s, however, have noticeably been implemented with the opposite goal of shrinking the scope of benefits to achieve greater financial stability. This shift in focus since the mid- 1990s can be illustrated with four major pension reforms in GEPS as follows.

Firstly, the pension reform introduced in 2000 increased the fiscal burden of the employer and made the government subsidize pension deficits. Secondly, in 2009, another significant pension reform was implemented which diversified income generation and reduced expenditures ? the resulting impact led to an increase in contribution rates and raised the pension age. Finally, in 2015, pension reform had been introduced which enhanced pension equity with the national pension for the general public. This reform was aimed at achieving long-term sustainability of the system and focused on financial stabilization.

Key events of the GEPS History

1960
  • Introduction of the GEPS (1960)
    <Introduction of relevant plans>
    • Military Personnel Pension System(1963)
    • Private School Teachers Pension System(1972)
    • National Pension System(1988)
1980
  • Establishment of GEP Service (1982)
    • For Pension administration, Fund management & Member support program operation
      * Fund reserves: KRW 549.1bn.
  • Construction of rental housing for GEs (1983)
  • Opening of the Suanbo Sangnok Hotel (1989)
  • Housing Construction for GEs(1993)
1990
  • First pension reform (1995)
  • Restructuring of GEP Service (1998)
    • Reduction of workforce by 43.5% (556 staff)
2000
  • Second pension reform (2000)
    • Introduction of deficit subsidy program by the Government
  • Opening the Hwa Seong golf club(2006)
    * Fund reserves: KRW 1.78tn (2000)
2010
  • Third pension reform (2010)
    • Increase in contribution rates, decrease of pension Benefits, change of Pension calculation, etc.
      * Fund reserves: KRW 5.83tn (2010)
2015
  • Fourth reform (2015)
    • Finance stabilization and improvement of public/private pension Equity
      * Fund reserves:KRW 10 .3 tn (2016)

The major reforms of the GEPS and its operations are as follows.

1960~1962

  • The Government Employees Pension System (GEPS) started in 1960.
  • Five long-term benefits were provided including Retirement Pension, Lump-sum Payment to Survivors and Disability Pension Benefit.
  • The combined contribution rates were 4.6% for both civil servants (2.3%) and the Government (2.3%).

1963~1966

  • In August 1962, the Government Employees Pension Act was revised to establish a comprehensive benefits programs for government employees.
  • Five short-term benefits were newly introduced including Medical Treatment Expenses, Childbirth Expenses, and Funeral Expenses. One new long-term benefits, namely the Survivors’ Pension, was also added.
  • Since its establishment in 1960, Military personnel were also recipients of GEPA. As the fund and recipient base grew, however, two years later, an exclusive fund was enacted through the Military Personnel Pension Act (MPPA) to service their specific needs. As a result of this, military personnel were thereafter excluded from GEPA and instead covered exclusively by the newly established, MPPA.

1967~1981

  • In April 1966, the Special Law for the Government Employees Pension Account (SLGEPA) was enacted
  • Based on the Act, the Government Employees Pension Fund (GEPF) was established apart from the government budget, which accrued a yearly surplus from revenue and expenditure of the GEPS.
  • As a result of this, instead of investing the government fund totally, the GEPF could be used for members’ benefits such as buying land for GEs’ recreational facilities; providing loans to GEs & pensioners and depositing surplus funds into the banks.
  • Regarding pension benefits, the replacement rate of retirement pension increased from 40%~50% to 50%~70%. The amount of Lump-Sum payment also increased by 1.5 times compared to the previous one.

1982~1995

  • The Government Employees Pension Service was founded in 1982.
    • As a quasi-government body, the GEP Service has taken over the management of the GEPS as well as the investment of the GEPF under the control of the Ministry of Government Administration (currently, the Ministry of Personnel Management.)
  • Due to the development of the national economy and its budgetary soundness, there were many changes to the GEPS providing government employees with better benefits: many new types of benefits were created. This can be seen in the higher rate of the Retirement Allowance and Survivors’ Pensions which both rose from 50% to 70%. Parallel to this, various member support programs were actively pushed forward with pension funds such as housing supply and leasing support; the construction of resort facilities & hotels for GEs and the provision loans.

1996 to present

  • Entering into the 1990s, the issue of pension finance began to arise along with the increase in the number of pensioners. Accordingly, the policy to expand benefits for government employees so far was suspended, and pension reforms to reduce benefits were promoted. To stabilize its financial status, the GEPA was revised in many ways since 1996. During this time, there were four significant pension reforms as follows:

The 1995 Reform

  • The 1995 reform can be marked as the beginning of the retrenchment of GEPS. The reform was led by the Ministry of Administration. The main changes included:
    • An increase of contribution rates from 11% (government: 5.5%, employee: 5.5%) to 15% (government: 7.5%, employee: 7.5%.)
    • The standardization of the retirement age to 60 years for new entrants from 1 Jan 1996.
    • An expansion of the range of the retirement earnings-test applicants to all pensioners who are working in the public sector
    • The transfer of financial resources for the Death Condolence payment, the Disaster Condolence Payment, and the Retirement Allowance to the state Budget.

The 2000 Reform

  • Amongst other socioeconomic factors, the 2000 reform was primarily driven by the economic crisis of 1997-1998. Amidst the huge layoff of government employees and the dramatic surge of pension expenditures, the GEPF was widely projected to default in 2001. The widespread cuts characteristic of the 2000 pension reform was ultimately a response to the challenges of its time. In comparison to the 1995 reform which modified the revenue structure (e.g. increase in the contribution rates), the 2000 pension reform altered the expenditures variables as well as income sources. The main changes included:
    • An increase in contribution rates from 15% to 17%
    • An additional charge to the Government for the annual deficit.
    • A progressive rise in retirement age from 50 to 60 (this was enforced over the span of 20 years)
    • Shifting the pension index from salary base to CPI (this included recalculation every five years)
    • Changing the formula of pension calculation from final salary to a 3-year average of the claimants revalued salary
    • Reinforcing earnings test for civil servants in higher income brackets
    • Financial recalculation per every five years

The 2009 Reform

  • In 2006, the government launched a special committee called ‘the Development Committee of the GEPS’ which consisted of stake holders from various fields to initiate discussions on reform. After long debates through the 1st and 2nd committees, the final reform bill was passed by the National Assembly in December 2009.
  • As a result of this reform, the pensionable salary was changed from ‘basic pay and a part of allowances (65% of gross pay)’ to ‘gross pay (subject to taxable salary)’. Therefore, both contribution rates and all benefit rates provided by the GEPS were recalculated based on the gross pay. The main changes included:
    • An increase in contribution rates from 11% (17% of the previous pensionable salary) to 14%.
    • A new formula to calculate pension from using the final 3-year average revalued salary to assessing the average of a claimants’ career salary.
    • An increase in the retirement age from 60 to 65 (this was only applicable to employees who were newlyhired after the revision.)
    • The pension indexation link to pure CPI and policy adjustment was abolished.
    • Survivors’ pension rating fell from 70% to 60% (this was only applicable to employees who were newlyhired after the revision.).
    • Earning tests for pensioners was strengthened
    • A cap was placed on the amount of pensionable salary at 1.8 times the average monthly salary across all government employees.

The 2015 Reform

  • The 2015 pension reform was characterized by its impact and creation. On the one hand, it remains the most recent and aggressive reform of its kind in terms cost reduction. In terms of its development, the 2015 pension reform used social consensus mechanisms and the participation of a wide range of stakeholders.
  • Since its establishment, subsidies by the government budgets structure for the GEPS expenditures had risen continuously for two reasons. Firstly, the provision of benefits far exceeded the contribution rates. Secondly, the demographic peak in aging as a result of the increased life expectancy led to a rapid rise in the number of pensioners. Additional pressure for reform also arose from wide-spread criticism of the GEPS for the pension benefit disparity between public employees and private sector employees.
  • To solve these problems, the President expressed a clear resolve to reform the GEPS in February 2014.
  • In the month after the Presidents statement in February 2014, the government commissioned a research institute in the same year, namely the Korea Development Institute (KDI), to draft reform proposals. The institute presented its proposals to the government later that year.
  • In October 2014, the ruling party submitted a reform bill in the name of all members. In reality, however, civil service unions and the opposition parties strongly opposed the reform bill.
  • In an attempt to foster consensus on pension reform, the National Assembly forged a Special National Assembly Committee and a Grand Compromise Committee. The latter was comprised of rival parties' members of Congress, government officials, civil service unions and experts. After having close to sixty conferences over the course of six months, a grand consensus on the pension reform was finally achieved in May 2015.
  • On May 29, 2015, the final reform bill was submitted to the National Assembly, and the bill passed 233-0 with 13 abstentions.
  • On June 22, 2015, the government made the law public, and the law was scheduled for implementation from January 1, 2016.
  • The main changes are as follows:

    Main Changes after the 2015 reform

    Main Changes after the 2015 reform
    Category Before After
    Contribution rates 14.0%
    (7% of GEs+7% of Gov’t)
    18.0% (in 5 transition years)
    (9% of GEs+9% of Gov’t)
    '16 16% → '17 16.5% →
    '18 17% → '19 17.5% →
    '20 18%
    Pension Calculation 1.9% × n × w 1.7% × n × w (20 years’ transition)
    * n: years in service * w: revalued average career pay
    Ceiling of Pensionable pay 1.8 times of average monthly pay for all full-time GEs 1.6 times of average monthly pay for all full-time GEs
    Maximum of Pensionable period 33 years 36 years
    Minimum service years for Pension entitlement 20 years in service 10 years in service
    Full Pension Age Employed before 2009 60 years 65 regardless of the entry year
    (in 18 transition years)
    Employed after 2010 65 years
    Pension Indexation CPI CPI (But no indexation for the next 5 years)
    Minimum service years 20 10
    Lump-sum alternatives Yes (no change)
    Survivors’ pension Employed before 2009 70% 60%
    Employed after 2010 60%
    Non-job related Disability Pension No Yes
    Income redistribution No Yes (only to National Pension equilibrant and up to 30 years in service)
    Pension splitting on Divorce No yes
    Earnings-test Reference earning average salary average pension
    Target (coverage) Income from wage and earnings from self-employment
    (Real estate rental income Excluded)
    Income from wage and earnings from selfemployment
    (Real estate income Included)