The main opposition Democratic Party (DP) has agreed to accept the ruling People Power Party’s (PPP) long-standing proposal for a 43% nominal income replacement rate as part of the national pension reform plan. In response, the PPP stated it would “positively accept” the decision, effectively resolving a key point of contention between the two parties in the pension reform debate.
Since 2022, both parties have been engaged in pension reform discussions through the special pension committee and the National Policy Council within the 21st National Assembly. While they previously agreed to raise the national pension contribution rate from 9% to 13%, they remained at an impasse over the income replacement rate, with the PPP advocating for 43% and the DP insisting on 44%. Given the urgency of pension reform, the prolonged deadlock over a mere one-percentage-point difference has been excessive. If the reform plan is finalized, it would represent a significant step toward resolving a critical national issue, despite the intense political divide over the impeachment of President Yoon Suk-yeol.
The national pension contribution rate has remained at 9% since its last increase in 1998, leaving it unchanged for 27 years. This is significantly lower than the average contribution rate of approximately 18% among member countries of the Organization for Economic Cooperation and Development (OECD). The failure of successive administrations to implement timely pension reforms has deepened the financial crisis. The national pension fund currently faces an annual deficit of approximately 32 trillion won ($22 billion), growing by about 88.5 billion won ($60 million) per day—an unsustainable burden for future generations. Political maneuvering over who stands to gain or lose from reform must be set aside in favor of addressing this urgent crisis. Moreover, the current political power vacuum presents a rare opportunity to advance pension reform without placing the full burden on a single party.
With both parties now aligned on the broad framework of the reform plan, they must act swiftly to complete the legislative process. However, a key concern remains: either side may attempt to tie the issue to President Yoon’s impeachment, jeopardizing the agreement at the last moment. A ruling on the impeachment case is expected next week, and if political turmoil escalates, this historic pension reform could once again be derailed.
Lawmakers must move quickly to pass the reform bill, which primarily focuses on adjusting the contribution and income replacement rates. Once that is achieved, they should proceed with discussions on additional structural changes, including an automatic adjustment mechanism to modify pension payments based on demographic and economic conditions, as well as broader reforms integrating the basic pension and retirement pension systems.
