Case on the Adjustment of the Calculation of Public Officials’ Pension

[15-2 (A) KCCR 319, 2001Hun-Ma93 et al., September 25, 2003]

A. Background of the Case

In this case, the Court upheld Article 27 Section 3 of the Public Officials Pension Act and Article 35 Section 3 of the Pension for Private School Teachers and Staff Act regarding the basis for calculating the amount of benefits (hereinafter referred to as the “Pension Calculation Basis Provisions”), Article 43-2 of the Public Officials Pension Act and Article 9 of the Addenda thereof and Article 42 Section 1 of the Pension for Private School Teachers and Staff Act and Article 7 Section 1 of the Addenda thereof regarding the adjustment of pension amounts and relevant transitional measures (hereinafter referred to as the “Pension Adjustment Provisions” and the “Transitional Measure Provisions”), and Article 46 Section 1 Item 1 of the Public Officials Pension Act and Article 42 Section 1 of the Pension for Private School Teachers and Staff Act regarding the age from which the pension will be paid (hereinafter referred to as the “Pension Commencement Age Provisions”).

The complainants had retired after working for 20 years, or were working, as educational officials, public officials, or private school teachers, and filed this constitutional complaint on the grounds that the above provisions violated their fundamental rights for being retroactive legislation.

B. Summary of the Decision and Relevant Decisions

The Court upheld the aforementioned provisions, for the following reasons.

The Pension Calculation Basis Provisions prescribe that those who retire after making contributions to their retirement pension while working as public officials or private school teachers or staff shall in the future receive retirement benefits calculated on the basis of the “average monthly remuneration of the last three years,” instead of the “monthly remuneration amount at the time of retirement,” which had previously been the case. This would constitute pseudo retroactive legislation, which applies to factual or legal relations that have not been completed and are in progress. Therefore, the provisions do not deprive the complainants of property rights by means of retroactive legislation, which is prohibited by Article 13 Section 2 of the Constitution.

Further, the aforementioned amendment was made to solve the pension deficit, which had grown in the span of 40 years, by raising the contribution burden and

lowering payment amounts, and was also part of efforts to improve the pension system in order to stabilize pension finance. The public interest achieved by such measures is highly substantial, and thus the principle of protection of confidence has not been violated.

The Pension Adjustment Provisions, based on indexation, are also part of reform measures aimed to stabilize pension finance; their purpose is to bring stability to the livelihoods of pension recipients by sustaining purchasing power, not to restrict or deprive the entitlement to benefits. When benefit amounts are reversed between higher and lower level public officials and teachers with the same tenure of office, despite the adjustments administered by the above provisions, transitional measures are available to resolve this through separate reimbursement. Therefore, the Pension Adjustment Provisions cannot be deemed as clearly unreasonable or arbitrarily discriminating against recipients of benefits.

The Transitional Measure Provisions regarding the adjustment of pension amounts prescribed that the adjustments would be enforced from January 1, 2001, and that recipients who were already receiving pension benefits would be subject to adjustments based on their pension amount as of December 31, 2000. Since this applies only to legal relations after the amendment of the Act, it does not constitute true retroactive legislation, which applies new laws retroactively to factual or legal relations that have taken place in the past. Therefore, the above provision does not violate the prohibition against retroactive legislation.

Given the nature of the entitlement to pension benefits, the specifics of benefit amounts are not fixed, but may change in accordance with state finance, the burden on the next generation, and social policy conditions. Therefore, confidence in the pension system does not necessarily lie in the expectation that “post-retirement pension benefits will be provided as stated in the current system.” Also, recipients merely collected their benefits passively, expecting them to be paid continuously based on current standards; thus, the expectation worth cannot be said to be especially substantial. Therefore, the principle of protection of confidence has not been violated.

As for the age at which the pension benefits would commence, transitional measures generally based on the principle of proportionality provide that those whose tenure of office exceeded 20 years when this law was enforced will be subject to the former law, while the commencement age for the remaining cases would be gradually shifted to 59 years old in 2020. In light of such measures, the Pension Commencement Age Provisions do not violate the principle of protection of confidence.

Justices Han Dae-Hyun and Choo Sun-Hoe dissented, as follows. Confidence placed in the adjustment of benefit amounts in accordance with pay increases is

formed continuously over an extended period, and thus cannot easily be expected to change. The value of protecting such confidence cannot be overlooked, since the pension system comprises an element of the legal status of public officials or teachers, guaranteed by the Constitution. Further, applying the indexation-based Pension Adjustment Provisions to those already receiving their pension benefits significantly harms the confidence of such recipients, and thus it cannot be said that the principle of protection of confidence has not been violated. To apply the indexation-based Pension Adjustment Provisions to all pension recipients, despite there being ways to achieve the relevant legislative purpose without harming the confidence of those already receiving their retirement pension, is an excessive restriction that goes beyond the minimum necessary extent. Therefore, the Transitional Measure Provisions violate the Constitution.

In another dissenting opinion, Justice Kim Young-Il stated that the Transitional Measure Provisions violated Article 13 Section 2 and Article 23 of the Constitution, for they infringed upon the complainants’ property rights through retroactive legislation, which is banned by the Constitution. Further, he claimed that even if the provisions constituted pseudo retroactive legislation they still violated the principle of protection of confidence.

On the same day, the Court upheld the provisions of the Military Pension Act that stipulated the adjustment and calculation of pension benefits in the same manner as the Public Officials Pension Act, citing the same grounds of constitutionality (2001Hun-Ma194).

C. Aftermath of the Case

The Court upheld the Pension Adjustment Provisions (2004Hun-Ba42, June 30, 2005) and the Pension Commencement Age Provisions (2013Hun-Ba259, December 23, 2015) of the Public Officials Pension Act, mostly for the same reasons as the decision above.

The Public Officials Pension Act was amended by Act No. 9905 on December 31, 2009, under which the calculation basis was changed from the “average monthly remuneration of the last three years” to the “average amount of standard monthly income for the entire service period,” pension adjustments reflected only inflation rates and not the pay increase rate of public officials, and the commencement age for the receipt of pension benefits was raised to 65 years of age.