Pension reform with long-term challenges
Published: 17 Mar. 2025, 00:00
After prolonged wrangling over the key issue of increasing the income replacement rate, the ruling and opposition parties have finally reached a consensus on pension reform. Jin Sung-joon, the Democratic Party’s chief policymaker, announced on March 14 that his party would accept an income replacement rate of 43 percent, and both the People Power Party and the government welcomed the agreement. This plan would raise the rate by three percentage points from the current schedule, which aims to lower it to 40 percent by 2028.
Lawmakers had already agreed to gradually raise the national pension contribution rate from the current 9 percent to 13 percent. With this agreement, the two core components of pension reform — higher contributions and a higher income replacement rate — will be adjusted in tandem, moving the system toward a “pay more, receive more” framework. If the National Assembly enacts the bill as agreed, it would mark the first successful pension reform in 18 years, following the changes implemented under the Roh Moo-hyun administration in 2007.
![The National Pension Service's local head office for the northern Seoul region located in Seodaemun District, western Seoul. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/03/17/dde1721f-79c0-4dd2-b81d-660c98b2d677.jpg)
While this agreement is commendable for securing bipartisan support, it also exacerbates intergenerational inequality in the long run. The fundamental problem is that pension subscribers will simultaneously contribute more during their working years and receive more in retirement — an inherent structural limitation. Raising the contribution rate helps stabilize the system’s finances, but increasing the income replacement rate worsens fiscal sustainability by accelerating the depletion of pension reserves. Nonetheless, political compromise was likely unavoidable to secure legislative approval. The expected nine-year delay in pension depletion achieved through higher contributions provides a temporary reprieve, but future discussions on adjusting the income replacement rate remain necessary.
However, lawmakers must recognize that this parametric reform is not the end of pension reform but merely the beginning. A far more complex and pressing task lies ahead: structural reform of the overall pension system, encompassing both public and private pensions.
With Korea’s rapidly aging population, the financial burden of basic pension payments is becoming increasingly unsustainable. At the same time, occupational pensions — including those for civil servants, military personnel and private school employees — are all running persistent deficits. The continued deterioration of public pension finances will inevitably place a heavier burden on the entire population, making further delays in reform untenable. Additionally, private pension systems such as retirement pensions — which fail to deliver adequate returns — also require urgent restructuring.
![Senior citizens wait to receive food at the Wongaksa soup kitchen near Tapgol Park in Jongno District, central Seoul, on Dec. 24, 2024. Korea became a ″super-aged society,″ classified by the United Nations as when the population aged 65 years or older account for more than 20 percent of the total population, as of Dec. 23, 2024. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/03/17/2c09a910-38a8-4398-afde-9d3cd9c1ec0b.jpg)
To facilitate discussions on structural reform, the National Assembly must swiftly establish a special committee on pension reform. If the opposition truly prioritizes the interests of younger and future generations, it has no justifiable reason to oppose the government and ruling party’s proposal to launch the committee. Lawmakers must also engage seriously in discussions on an automatic adjustment mechanism, a system that stabilizes pension finances by automatically adapting to demographic and economic changes. Most OECD member countries have already adopted such mechanisms as an essential measure for ensuring long-term pension sustainability.
The ruling and opposition parties must not stop at this limited parametric reform. True pension reform will only be achieved if the special committee tackles comprehensive structural reform as well. They must not lose sight of this reality.
Translated using generative AI and edited by Korea JoongAng Daily staff.
Lawmakers had already agreed to gradually raise the national pension contribution rate from the current 9 percent to 13 percent. With this agreement, the two core components of pension reform — higher contributions and a higher income replacement rate — will be adjusted in tandem, moving the system toward a “pay more, receive more” framework. If the National Assembly enacts the bill as agreed, it would mark the first successful pension reform in 18 years, following the changes implemented under the Roh Moo-hyun administration in 2007.
The National Pension Service's local head office for the northern Seoul region located in Seodaemun District, western Seoul. [NEWS1]
While this agreement is commendable for securing bipartisan support, it also exacerbates intergenerational inequality in the long run. The fundamental problem is that pension subscribers will simultaneously contribute more during their working years and receive more in retirement — an inherent structural limitation. Raising the contribution rate helps stabilize the system’s finances, but increasing the income replacement rate worsens fiscal sustainability by accelerating the depletion of pension reserves. Nonetheless, political compromise was likely unavoidable to secure legislative approval. The expected nine-year delay in pension depletion achieved through higher contributions provides a temporary reprieve, but future discussions on adjusting the income replacement rate remain necessary.
However, lawmakers must recognize that this parametric reform is not the end of pension reform but merely the beginning. A far more complex and pressing task lies ahead: structural reform of the overall pension system, encompassing both public and private pensions.
With Korea’s rapidly aging population, the financial burden of basic pension payments is becoming increasingly unsustainable. At the same time, occupational pensions — including those for civil servants, military personnel and private school employees — are all running persistent deficits. The continued deterioration of public pension finances will inevitably place a heavier burden on the entire population, making further delays in reform untenable. Additionally, private pension systems such as retirement pensions — which fail to deliver adequate returns — also require urgent restructuring.
Senior citizens wait to receive food at the Wongaksa soup kitchen near Tapgol Park in Jongno District, central Seoul, on Dec. 24, 2024. Korea became a ″super-aged society,″ classified by the United Nations as when the population aged 65 years or older account for more than 20 percent of the total population, as of Dec. 23, 2024. [YONHAP]
To facilitate discussions on structural reform, the National Assembly must swiftly establish a special committee on pension reform. If the opposition truly prioritizes the interests of younger and future generations, it has no justifiable reason to oppose the government and ruling party’s proposal to launch the committee. Lawmakers must also engage seriously in discussions on an automatic adjustment mechanism, a system that stabilizes pension finances by automatically adapting to demographic and economic changes. Most OECD member countries have already adopted such mechanisms as an essential measure for ensuring long-term pension sustainability.
The ruling and opposition parties must not stop at this limited parametric reform. True pension reform will only be achieved if the special committee tackles comprehensive structural reform as well. They must not lose sight of this reality.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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