The National Assembly’s Special Committee on Pension Reform has been effectively inactive for over a week. Although the People Power Party (PPP) and the Democratic Party of Korea (DPK) agreed to increase the pension contribution rate from the current 9% of income to 13%, they have struggled to reach a consensus on the replacement rate, which determines the amount of pension benefits received. The PPP proposes increasing the current replacement rate from 40% to 43%, while the DPK advocates for raising it to 45%.
Committee chairman Joo Ho-young stated, “I hope that based on these discussions, swift pension reform can be achieved during the 22nd National Assembly.”
Although a final agreement was not reached, the bipartisan agreement to raise the contribution rate by 4 percentage points annually is significant, given that the rate has been stuck at 9% for 26 years since 1998. The pension system’s financial instability has been primarily attributed to the imbalance where the replacement rate is 40% of the average lifetime income, while the contribution rate is less than a quarter of that at 9%. The committee has engaged in nearly two years of extensive discussions and public consultations since its first meeting in October 2022. It is disappointing that the entire debate may be undone over a mere 2 percentage points difference in the proposed replacement rate.
Experts agree that either of the proposed rates would be far better than maintaining the current 9%. One potential compromise is to settle on a 44% replacement rate by each side conceding 1 percentage point. Agreeing to a 13% contribution rate and a 44% replacement rate could delay the pension fund’s depletion from 2055 to 2063 and reduce the cumulative deficit by 1,293 trillion won by 2093.
In a press conference marking his second year in office, President Yoon Suk-yeol suggested passing the pension reform discussion to the 22nd National Assembly for more thorough deliberation rather than rushing it now. However, it is puzzling why the possibility of final adjustments in the current assembly was preemptively dismissed, especially with about two weeks remaining in the 21st National Assembly. Conditions for reform are unlikely to improve in the 22nd Assembly, given the upcoming 2026 local elections, the 2027 presidential election, and the latter half of the presidential term, which may present even greater challenges. Addressing the immediate issues now would allow the 22nd National Assembly to take a more measured approach in discussing broader structural reforms, such as the relationship between the basic pension and the national pension.
