National Pension Act Case

(13-1 KCCR 301, 99Hun-Ma365, February 22, 2001)

Contents of the Decision

1. Whether the article of the National Pension Act which stipulates a coercive collection of pension premium, thus presupposing com-pulsory subscription to the pension program, and occurrence of theincome redistribution, violates the principle of statutory taxationand the right to property.

2. Whether the article of the National Pension Act stipulating com- pulsory subscription violates the right to pursue happiness.

3. Whether the aforementioned articles are in violation of the market economy principle adopted by the Constitution.

Summary of the Decision

1. The National Pension Program is designed to give monetarybenefits to its members based on the payment made by the membersduring their subscription period. The pension premium, however, is not a form of taxation which can be defined as a coercive collectionof money by the government without entailing performance of aspecific deed in return. Although Article 79 of the National Pension Act stipulates a coercive collection of pension premiums, it is due to the strong social or public nature of the national pension program, not because the pension premium is a form of taxation. While theNational Pension Program brings about a redistribution of income,it is an essential element of any social insurance program, and theextent of the redistribution of income is a matter of governmentpolicy. It can also be said that collection of pension premiums iswithin the social limits inherent in the right to property. Thus, the National Pension Program does not violate the principle of statutory taxation nor the right to property.

2. The National Pension Program, based on compulsory sub-scription and coercive collection of the pension premium, can be saidto be in violation of the right to pursue happiness of individuals whoopt to prepare for social uncertainties on their own. However, theNational Pension Act, which aims to contribute to the maintenanceof standards of living, and the improvement of social welfare ofcitizens by providing monetary benefits to old age, invalidity, or deathof citizens has a legitimate purpose. As a social insurance programwhich uses a national insurance system to diversify risks, theNational Pension Program is appropriate as a means to achieve leg- islative objectives. The National

Pension Program also restricts in-dividual choice using the least restrictive means. Regarding thebalance of interest test, the public interest sought by the NationalPension Program is much greater than the private interest at hand,namely, respect for the individual's personal choice to use personalsavings. Hence, the National Pension Program does not violate theprinciple of proportionality, and does not violate the right to pursue happiness.

3. In light of the economic order of the constitution, the National Pension Program, a coercive savings program designed to give socialsecurity at old age by raising funds through the social insuranceprogram, is based on the principle of mutual assistance and socialsolidarity. The Program, which brings about the redistribution ofincome between high-income groups and low-income groups, work-ing people and retirees, and current generation and future genera-tions, is in accordance with the social market economy, and does not violate the market economy principle adopted by the Constitution.

Parties

Complainants

Kim Ki-oh and 115 others

Counsel of record: Jung Ki-seung and 38 others

Holding

Request for adjudication is rejected.

Reasoning

1. Overview of the Case and the Subject Matter of Review

A. Overview of the Case

Complainants are insured by the National Pension Plan throughtheir workplaces or local programs, and have been notified by theNational Pension Corporation to pay the pension premium by May 10,1999. On June 22, 1999, the complainants filed this constitutionalcomplaint, arguing that Article 75 and Article 79 of the National Pen-sion Act, which stipulate compulsory subscription to the pension pro-gram and aims to

achieve the redistribution of income, are incon-gruent to the principle of statutory taxation, infringe on their prop-erty right and right to pursue happiness, and are in violation ofArticle 119(1) of the Constitution, which stipulates the respect for thefreedom and creative initiative of individuals in economic affairs.

B. Subject Matter of Review

The subject matter of review is the constitutionality of Article 75and Article 79 of the National Pension Act (revised by Act No. 5623 on December 31, 1998). The provisions are as follows:

Article 75 (Collection of Pension Premiums)

(1) To meet the expenses needed for the national pension service,the Corporation shall collect each month pension premiums frominsured persons and employers during the subscription period.

(2) In case of a workplace insured person, the contribution feewill be borne by the insured person while additional changes will beborne by the employer. The pension premium to be paid by eachwill be equivalent to 45/1000 of the standard monthly income amountof the insured person.

(3) The pension premium of locally, voluntarily, and voluntarilyandcontinuously insured persons shall be borne by the locally, vol- untarily, or voluntarily and continuously insured persons themselves,but the amount shall be 90/1000 of the standard monthly incomeamount.

Article 79 (Demanding to Pay Pension Premiums and Disposition of Arrears)

(1) If the pension premium of a workplace insured person and alocally insured person or other impositions under this Act fail to bepaid within the time limit, the Corporation shall demand the paymentthereof within the period of time which it fixes, in accordance withthe Presidential Decree.

(2) In demanding to pay under paragraph (1), the Corporationshall fix the period of more than ten days and issue a note of de- mand.

(3) If a person who is urged to pay under paragraph (1), fails to pay the pension premium and other money to be collected underthis Act in the prescribed time limit, the Corporation may collect itaccording to the example of a disposition of national taxes in arrearswith the approval of the Minister of Health and Welfare.

2. Complainants' Arguments and Opinions of Related

Agencies

A. Complainants' Arguments

(1) The National Pension Act presupposes the validity of the redistribution of income caused by the National Pension Program. Under the current National Pension Program, individuals in high-income groups receive less benefits than individuals in low-incomegroups: The ratio between benefits and total pension premiums paidduring the subscription period of an individual in a low-income brack-et is larger than that of an individual in a high-income bracket. Insubstance, this amounts to a coercive collection of money by thegovernment without entailing performance of a specific deed in re-turn, and is equivalent to collection of tax. The National Pension Actwhich makes possible the usurpation and transfer of purchasingpower from high-income groups to low-income group is contrary toArticle 59 of the Constitution, which stipulates the principle of stat- utory taxation and violates the right to property protected by Article 23(1) of the Constitution.

(2) All citizens are free to make their own plans for their lives without any restrictions, and the State only needs to guarantee suchindividual freedom, including the freedom of choice in preparing forthe future. The State only needs to make exceptional interference forthose who cannot support themselves because of old age and illness, and in such cases, the State should provide public assistance apartfrom the pension program. Any other income redistribution effortsby the State will be excessive and will be considered a socialistpolicy. Thus, the National Pension Program is contrary to Article119(1) of the Constitution, stipulating respect for the freedom andcreative initiative of enterprises and individuals in economic affairs,and violates the right to pursue happiness by limiting the right tochoose one's own retirement plan.

B. Opinions of the Minister of Health and Welfare and

Chairman of the National Pension Corporation

(1) The National Pension Program is designed to give benefitsbased on each subscriber's pension premiums. Under the Program,even an individual in a high-income bracket receives more benefits than the pension premium he or she paid, and thus, the pension pre- mium is different from taxation, which can be defined as a coercivecollection of money by the government without entailing performanceof a specific deed in return. In addition, such elements as the basisfor premium computation, criterion for premium assessment, date ofpayment, conditions to receive benefits, and benefits criterion aredetermined by the Act itself, and thus the Act is not contrary to the principle of

statutory taxation.

(2) The National Pension Program brings about income redistri-bution from high-income groups to low-income groups by the meansof a public pension plan, thereby closing the gap in income inequalityand ensuring a minimum standard of living for the poor. TheNational Pension Program is in accordance with Article 34(1) of theConstitution which provides the basis for the right to a humane live-lihood, Article 34(2) of the Constitution which stipulates the State'sresponsibility to promote social security and welfare of its citizens,Article 119(1) of the Constitution which stipulates the principle ofeconomic order, and Article 119(2) of the Constitution which providesthe ground for the regulation and coordination of economic affairsby the State.

(3) The basic characteristics of the public pension program associal insurance include ① compulsory subscription, ② guarantee of a minimum standard of living, ③ combination of individual equalityand social adequacy, and ④ right to benefits. These characteristicsdistinguish a public pension program from a private pension pro-gram such as a corporate pension plan or an individual pension plan.Compulsory subscription and the redistribution of income reflectsthe nature of any public pension program, and is not contrary to the Constitution.

3. Review

A. Extension of Subject Matter of Review

Complainants filed this constitutional complaint only against Ar-ticle 75 and Article 79 of the National Pension Act. However, Article75 and Article 79 of the Act stipulating coercive collection of pensionpremiums, and Article 6, Article 8(1) and Article 10 specifying com-pulsory subscription to the National Pension Program must be viewedin a single context. The complainants argue that their right topursue happiness is violated by compulsory subscription to the Na- tional Pension Program which limits the right to choose one's own retirement plan. Thus, the Court will extend the scope of review to these provisions on compulsory subscription.

B. History, Nature, and Current Status of the National

Pension Program

(1) The National Welfare Pension Act (Act No. 2655) enacted on December 24, 1973, and revised twice thereafter, provided the initialfoundation for the public pension program in Korea, but economic

depression and general social conditions caused a delay in launching of the public pension program. With changes in socioeconomic con-ditions, the social awareness and desire to secure improved standardsof living after retirement have increased, and individual abilities tobear the expense necessary for such social program have signifi-cantly improved. The trend toward nuclear families and increasinglife expectancy called for the design of new retirement plans, andthe protection of having standards of individuals who lost income dueto injury or illness from work has become a compelling social issue.In accordance with such social demand, the National Assembly onDecember 31, 1986, legislated the National Pension Act (Act No. 3902)a comprehensive revision of the old National Welfare Pension Act.On August 14, 1987, the Administration revised the Enforcement Decree of the National Welfare Pension Act by the EnforcementDecree of the National Pension Act (Presidential Decree No. 12227), which entered into force on January 1, 1988. Initially, the compul-sory subscription provision only applied to workers and employersat workplaces with 10 or more workers. The August 10, 1991 revi- sionof the Enforcement Decree (Presidential Decree No. 13449) which was put into effect on January 1, 1992, extended those subject to the compulsory subscription provision to workers and employers at work- places with 5 or more workers. Then, the National Pension Act wasrevised by Act No. 4909 (effective date : July 1, 1995) on January 5,1995 to compel residents at farming and fishing villages, and farmersand fishermen residing in urban areas, to subscribe to the NationalPension Program. Finally, the December 31, 1998 revision by Act No.5623 subjected residents in urban areas to the compulsory subscrip-tionprovision.

(2) The objective of the National Pension Program is to contri-bute to the stabilization of livelihood and promotion of welfare ofcitizens by paying pensions for old age, invalidity or death of citizens(Article 1 of the National Pension Act). It is a social insuranceprogram which devises relief through the national insurance systemby dissipating a financial burden put on an individual when theaforementioned events occur. Article 34(1) of the Constitution stipu-lates that "all citizens shall be entitled to a life worthy of human beings," thereby guaranteeing the right to livelihood, and Article34(2) provides the ground for the State's responsibility to promotesocial security and welfare. Article 34(5) of the Constitution declaresthe State's duty to protect citizens incapable of earning a livelihood.In order to clearly define the constitutional stipulations on socialsecurity, the National Assembly enacted the Framework Act on SocialSecurity, articulating basic elements of a social security program.Article 3[1] of the Act defines "social security" as "social insurance, public aid, social welfare service, and other related welfare systems,which are provided to protect citizens from social danger, such asillness, disability, ageing, unemployment and death, to

overcome pov-erty, and to improve every citizens' quality of life," thereby classify-ing social insurance as an element of social security. Article 3[2] ofthe Act defines "social insurance" as "a system of insurance, whichguarantees citizens's health and income by the from social dangersthat can harm the citizens by means of an insurance system."

(3) Social security programs began with social insurance, andsocial insurance is still the most widely used social security program.Social insurance began with worker's compensation insurance. Inthe beginning, worker's insurance only protected workers who hadpermanently lost their labor abilities, but over the years, worker'sinsurance extended its coverage to workers who had temporarily lostlabor opportunities. Social insurance shares the principles and ob-jectives of worker's insurance, and the only difference between socialinsurance and worker's insurance is that the eligibility for socialinsurance is not limited to workers. Considering the objectives ofsocial insurance, it can be said that the following principles aregenerally adopted in any social insurance program:

① The minimum income guaranteed by social insurance shall be above the minimum cost of living;

② The instituted program will redistribute income by requiringindividuals in high-income brackets to contribute more and receiveless than individuals in low-income brackets. The extent of the re- distribution of income will be decided by the State with due consid- eration to social efficiency and individual equality;

③ In order to achieve unity among its members and bring about national solidarity, all citizens shall be made subject to the program.If any social insurance program is designed for a special group, allmembers of that social group shall become involved in the program; and

④ Funds necessary for the social insurance program will beallocated and raised by employers, workers, and the State.

(4) The United Kingdom, Germany, France, the United States ofAmerica, Japan, and other developed nations around the world haveadopted social insurance programs incorporating the above principles.

(5) Currently, all citizens residing in the Republic of Korea whoseage is not less than eighteen and is less than sixty are to becomeinsured under the national pension program, and the insured areclassified into workplace insured persons, locally insured persons,voluntarily insured persons, and voluntarily and continuously insuredpersons. There are two types of workplace insured persons: com-pulsory subscribers and voluntary subscribers. Workers and employ-ers in workplaces with 5 or more workers are required to subscribeto the national pension program, and workers and employers in allother workplaces can choose to join the program. Persons who are not workplace insured persons and whose age

is not less than eigh- teen and is less than sixty, are locally insured persons. The kindsof benefits as prescribed by the National Pension Act include oldage pensions, disability pensions, survivors' pensions, and lump sumrefunds which an insured person receives when he or she fails tomeet the eligibility requirement for a pension prescribed by the Act.All pension benefits are composed of basic pension payments andadditional pension payments. Income and subscription period of theinsured person will be considered in calculating the basic pensionpayments, and families to be supported will be accounted for in com-puting additional pension payments. The basic pension payment willbe calculated by multiplying 1800/1000 with the sum of ① the aver-age monthly income for the year preceding the year a pension is paid(average standard monthly income of all insured persons) and ② theaverage standard monthly income of the insured person during hisor her subscription period. The pension premium collected from in-sured persons and employers make up the principal source of fundingfor the national pension service. In the case of a workplace insuredperson, the contribution fee will be borne by the insured person whileadditional charges will be borne by the employer, and the pensionpremiums to be paid by each will be equivalent to 45/1000 of thestandard monthly income of the insured person. In the case of local-ly insured persons, voluntarily insured persons, and voluntarily andcontinuously insured persons, the pension premium will be borne byinsured persons themselves, and the amount of premium will beequivalent to 90/1000 of the standard monthly income.

C. Violation of the Principle of Statutory Taxation

and the Right to Property

(1) The National Pension Program is designed to give monetary benefits to its members based on the payment made by insured per-sons during their subscription period, and thus, it is not a form oftaxation which can be defined as a coercive collection of money by the government without entailing performance of a specific deed inreturn.

Although Article 79 of the National Pension Act stipulates coer- cive collection of pension premiums, through disposition of arrears it is because of the strong social or public nature of the national pen- sion program, not because the pension premium is classified as tax- ation.

The complainants argue that under the current National PensionProgram, and the income redistribution principle it upholds, individu-als who paid less pension premiums receive more benefits than what they paid for, and individuals who paid higher pension premiums re-ceive less benefits than what they paid for. The complainants arguethat since individuals who paid higher pension premiums receive lessbenefits than

what they paid for, it can be said that the differencebetween the benefits and payments of these individuals are beingcollected by the State under the disguise of pension premiums, andthat this is tantamount to taxation by the State in that it is collect-ing money without performing a specific deed in return. However,one of the basic principles adopted by the National Pension Program,a form of social insurance, is to achieve the income redistributioneffect. As examined above, the relationship between the pensionpremiums and benefits is to be decided by the legislature with dueconsideration to social efficiency and individual equality. This meansthat there is no direct correlation between the pension premium andbenefitsper se, and thus, complainants' argument is based on awrong premise. The current National Pension Program does bringabout a fairly large degree of income redistribution since the ratiobetween benefits and total pension premiums paid during the sub-scription period of an individual in the highest-income bracket ismuch smaller than those given to an individual in the lowest-incomebracket (under the current National Pension Program, individuals inthe highest-income group pay a pension premium more than 16.4times that paid by individuals in the lowest-income group, and re-ceive benefits 3.2 times more than that received by individuals in thelowest-income group). Yet, individuals in the highest-income bracketstill receive more benefits than the total pension premiums they paidduring their subscription period (pension premium ratio is 1.31 ex-ceeding 1.0.). As such, the current National Pension Program doesnot bring about a redistribution of income between individuals in thecurrent generation, but places a financial burden on the future gen-eration. This means that there is no ground for complainants' argu-ment that individuals in high-income groups suffer a loss becauseof the redistribution of income between the wealthy and the poor.

(2) The complainants argue that because the National PensionProgram is designed to bring about a redistribution of income, itleads to an usurpation and transfer of purchasing power from high-income groups to low-income groups, and this is in violation ofArticle 23(3) of the Constitution banning infringement on the rightto property without just compensation.

But as we have seen previously, there is no direct correlationbetween pension premiums and benefits, and individuals in high-income groups cannot argue that they receive less benefits than whatthey are entitled to. Thus, there is no usurpation of purchasingpower from high-income groups, and there is no encroachment onthe right to property.

D. Violation of the Right to Pursue Happiness

Article 10 of the Constitution states that "all citizens shall beassured of human dignity and worth and have the right to pursuehappiness." The right to pursue happiness includes, as its concretemanifestation, the general freedom of action and the freedom to actaccording to one's natural personality. The general freedom of actionincludes the freedom of contract, which refers to the freedom to enterinto a contract as well as the freedom not to form a contract. TheNational Pension Program, which takes no heed of personal choice, forces compulsory subscription, and collects pension premiums in acoercive manner. The system may seem to be in violation of theright to pursue happiness of individuals who choose not to join theNational Pension Program and prepare for future social dangers ontheir own.

However, all liberties and rights of people may be restricted bya statute when such restriction is necessary for national security,maintenance of order, or for public welfare, as long as the statute isnot in violation of the rule against excessive restriction. TheNational Pension Program purports to contribute to the stabilizationof livelihood and promotion of welfare of citizens by paying pensionfor the old age, invalidity or death of citizens (Article 1 of theNational Pension Act). Such purpose of the National Pension Pro-gram is in accordance with Article 34(1) of the Constitution provid-ing for the general right to life and Article 34(2) stipulating theState's duty to promote social security and welfare. Therefore, theNational Pension Program has a legitimate purpose. The NationalPension Program is a social insurance program which aims to di-versify risks utilizing national insurance system when citizens comeacross obstacles such as old age, disability, and death of familymembers, and it is appropriate as the means. The National Pension Act has gradually extended the scope of compulsory subscription tothe Pension Program. In calculating the pension premiums, the monthly income of 3.6 million won is regarded as the maximum earnings by an insured person (see Article 5 and Table 1 of theEnforcement Decree of the National Pension Act). Individuals earningmore than 3.6 million won a month need not pay extra pension pre- miums for income in excess of 3.6 million won, and they are free touse excess income any way they want. Therefore, the presentNational Pension Program restricts the freedom of choice using the least restrictive means. The public interest sought by the NationalPension Program, which upholds the principle of social insurance tomake all citizens subject to the program and dissipates social dangersof individual citizens among all members of the society, therebyplaying the role of a social safety net for retirees and their families,is far greater an interest than the private interest that the com-plainants assert, namely, respect for individual's personal choice touse personal savings in order to prepare for the future.

In sum, the National Pension Program based on compulsory sub-

scription and coercive collection has a legitimate purpose, and themeans of restricting the right does not violate the rule against ex-cessive restriction. Therefore, it does not violate the right to pur- sue happiness.

E. Violation of the Market Economy Principle

Article 119(1) of the Constitution states that "the economic orderof the Republic of Korea shall be based on a respect for the free-dom and creative initiative of enterprises and individuals in economicaffairs," thereby declaring the adoption of a free-market economybased on the right to private property, the principle of private auto- nomy, and the principle that the liabilities for general torts are allo-cated according to fault. Article 119(2) provides that "the State mayregulate and coordinate economic affairs in order to maintain bal-anced growth and stability of the national economy, to ensure properdistribution of income, to prevent the domination of the market andthe abuse of economic power, and to democratize the economy throughharmony among the economic agents." Furthermore, Article 34(1)stipulates that "all citizens shall be entitled to a life worthy of humanbeings," and Article 34(5) pronounces that "citizens who are incapableof earning a livelihood due to a physical disability, disease, old age orother reasons shall be protected by the State under the conditionsas prescribed by Act." Such provisions reflect the fact that theConstitution has adopted the principles of a social state. In sum,the Constitution declares the free-market economy as a foundation,but has also adopted the principles of a social state to allow gov- ernmental interference to achieve substantial freedom and equality ofall citizens (10-1 KCCR 522, 533-534, 96Hun-Ka4 and etc., May 28,1998). In other words, while the economic order adopted by theConstitution can be classified as a free-market economy based onthe protection of the right to private property and respect for free competition, it also has characteristics of a social market economyin that the Constitution allows regulation and coordination of theState to rid the adverse effects of the free-market economy, topromote social welfare, and to achieve social justice (8-1 KCCR 370,380, 92Hun-Ba47, April 25, 1996). Considering such principles ofeconomic order adopted by the Constitution, a coercive savingsprogram designed to give social security at old age by raising fundsthrough the social insurance program. The Program, which bringsabout the redistribution of income between high-income groups andlow-income groups, working people and retirees, and current genera-tions and future generations, is in accordance with the socialmar-ket economy, and the complainants' argument that the National Pen-sion Program is in violation of the economic order adopted by theConstitution is without basis.

4. Conclusion

All Justices unanimously decide that articles of the National Pen-sion Act stipulating compulsory subscription to the National Pension Program and the coercive collection of pension premiums are consti- tutional, and hereby reject the complainants' claims.

Justices Yun Young-chul(Presiding Justice), Lee Young-mo,Ha Kyung-chull, Kim Young-il, Kwon Seong, Kim Hyo-jong, Kim Kyoung-il(Assigned Justice), and Song In-jun