The National Assembly’s Special Committee on Pension Reform discussed a revised pension proposal on April 30, presented by its Public Opinion Committee. The first option proposed increasing contributions from the current 9% of income to 13% and raising the payout from 40% to 50%. The second option suggested increasing contributions to 12% while maintaining the current payout level. After a series of debates and educational sessions, a group of citizen representatives selected the first option as their preferred choice, which was then reported to the special committee. The Democratic Party of Korea (DPK) supports this option.
The problem is that the first option is unsustainable for future generations. Implementing the first option would delay the depletion of the national pension fund from 2055 to 2062, but the increased payouts would lead to an accumulated deficit of an additional 702 trillion won from 2062 to 2093, an unbearable burden for generations currently in their teens. The pension and welfare systems could be at risk of collapsing. The citizen representatives could have voted without fully understanding these implications.
Another critical issue is the urgency of even a slight increase in contributions. Contributions to the national pension have not been increased in 26 years and are currently only half the OECD average. To reduce the future burden on younger generations, it is crucial to pass a proposal to increase contributions during the current 21st National Assembly, which ends in May. Especially in South Korea, where the largest population cohorts are in their 40s and 50s, accumulating as much in premiums as possible before they retire is essential for fiscal stability. Now could be an opportune moment with the DPK currently supporting pension reform.
A compromise between the first and second pension options is possible. Experts suggest setting contributions and payouts at an average of the two plans (12.5% and 45%) could increase payouts while reducing future burdens. The DPK secretary of the special committee said, “We will find a compromise that secures both income and financial stability during committee discussions.” The gap in support between the two options is minor. Passing a compromise by May could allow the 21st National Assembly, often criticized as the worst, to achieve a significant national accomplishment.
