Even if it's unsatisfactory, pension reform must not fail
Published: 24 Feb. 2025, 00:00
Although national pension reform talks have surmounted a critical hurdle, they are once again encountering last-minute difficulties over the income replacement rate. Both the People Power Party (PPP) and the Democratic Party (DP) have agreed to raise the pension contribution rate from the current 9 percent to 13 percent. However, on the income replacement rate — that is, the benefits received — the PPP insists on 43 percent, while the DP holds firm at 44 percent, leaving the two sides at an impasse. Even during the government–opposition–political party meeting on Feb. 20, interim PPP leader Kwon Young-se and DP leader Lee Jae-myung failed to reconcile their differences on this issue.
A similar deadlock occurred during the 21st National Assembly, when the PPP advocated for 43 percent and the DP for 44 percent, ultimately failing to overcome a 1 percentage point difference. But what does a 43 percent versus a 44 percent income replacement rate really mean for the future of the pension fund?
According to government fiscal projections, under a scenario with a 13 percent contribution rate and a 43 percent income replacement rate, the national pension fund would start running a deficit in 2048 and be exhausted by 2064. Under a scenario with the same 13 percent contribution rate but a 44 percent income replacement rate, the deficit would commence a year earlier, in 2047, while the fund would still be depleted by 2064. In this light, the difference between 43 percent and 44 percent does not appear substantial. Given that the national pension currently suffers a staggering deficit of about 88.5 billion won ($61 million) per day — or 32 trillion won annually — it is prudent to finalize the reform plan as quickly as possible.
Some members within the PPP have recently argued that raising the income replacement rate itself amounts to populism, going so far as to reject last year’s government proposal of a 42 percent rate in favor of maintaining the current 40 percent. Indeed, not raising the income replacement rate would significantly improve the pension’s fiscal outlook. According to a long-term fiscal forecast released Sunday by the National Assembly Budget Office, under current policies the pension fund is expected to be exhausted around 2057. Raising the income replacement rate to 43 percent or 44 percent would delay the fund’s depletion by only about 7 years — suggesting that the reform proposals currently under discussion are little more than stopgap measures.
Yet, the essence of politics is negotiation. With the DP — holding a commanding majority in the National Assembly — demanding an increase in the income replacement rate, completely dismissing this stance risks derailing the entire pension reform effort. Moreover, expecting to implement decades-long reforms all at once is overly ambitious. Both base and structural reforms of the national pension represent critical challenges that must continue to be addressed by the next administration and the one after that. The DP, too, should recognize that an excessive increase in the income replacement rate could accelerate the pension crisis, and must make a rational decision for the sake of future generations.
Although national pension reform may lack popular appeal, issues essential to the nation’s future often find their most opportune moment during periods of presidential power vacuums. Both the ruling and opposition parties must not let a mere 1 percentage point difference in the income replacement rate prevent the National Assembly from processing the pension reform proposal this February.
Translated using generative AI and edited by Korea JoongAng Daily staff.
A similar deadlock occurred during the 21st National Assembly, when the PPP advocated for 43 percent and the DP for 44 percent, ultimately failing to overcome a 1 percentage point difference. But what does a 43 percent versus a 44 percent income replacement rate really mean for the future of the pension fund?
According to government fiscal projections, under a scenario with a 13 percent contribution rate and a 43 percent income replacement rate, the national pension fund would start running a deficit in 2048 and be exhausted by 2064. Under a scenario with the same 13 percent contribution rate but a 44 percent income replacement rate, the deficit would commence a year earlier, in 2047, while the fund would still be depleted by 2064. In this light, the difference between 43 percent and 44 percent does not appear substantial. Given that the national pension currently suffers a staggering deficit of about 88.5 billion won ($61 million) per day — or 32 trillion won annually — it is prudent to finalize the reform plan as quickly as possible.
Some members within the PPP have recently argued that raising the income replacement rate itself amounts to populism, going so far as to reject last year’s government proposal of a 42 percent rate in favor of maintaining the current 40 percent. Indeed, not raising the income replacement rate would significantly improve the pension’s fiscal outlook. According to a long-term fiscal forecast released Sunday by the National Assembly Budget Office, under current policies the pension fund is expected to be exhausted around 2057. Raising the income replacement rate to 43 percent or 44 percent would delay the fund’s depletion by only about 7 years — suggesting that the reform proposals currently under discussion are little more than stopgap measures.
Yet, the essence of politics is negotiation. With the DP — holding a commanding majority in the National Assembly — demanding an increase in the income replacement rate, completely dismissing this stance risks derailing the entire pension reform effort. Moreover, expecting to implement decades-long reforms all at once is overly ambitious. Both base and structural reforms of the national pension represent critical challenges that must continue to be addressed by the next administration and the one after that. The DP, too, should recognize that an excessive increase in the income replacement rate could accelerate the pension crisis, and must make a rational decision for the sake of future generations.
Although national pension reform may lack popular appeal, issues essential to the nation’s future often find their most opportune moment during periods of presidential power vacuums. Both the ruling and opposition parties must not let a mere 1 percentage point difference in the income replacement rate prevent the National Assembly from processing the pension reform proposal this February.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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