Rival parties pass first national pension reform in 18 years

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Rival parties pass first national pension reform in 18 years

Published: 20 Mar. 2025, 18:13

LEE SOO-JUNG
[email protected]

Audio report: written by reporters, read by AI

Conservative People Power Party floor leader Kweon Seong-dong, left, National Assembly Speaker Woo Won-shik, center, and liberal Democratic Party floor leader Park Chan-dae hold documents listing agreed provisions for the national pension reform scheme at the National Assembly in western Seoul on March 20. [NEWS1]

Korea's rival parties passed the first amendment to the national pension scheme in 18 years on Thursday, raising the contribution rate by 4 percent.

During a plenary session at the National Assembly in western Seoul, lawmakers from the conservative People Power Party (PPP) and liberal Democratic Party (DP) jointly passed a bill to hike the contribution rate paid into the National Pension Service to 13 percent from the current 9 percent.

Lawmakers on both sides of the aisle also fixed the income replacement rate, the relative coverage of receivable pensions compared to the average income of insured people, at 43 percent.

Of 277 legislators present, 193 voted for the amendment. A total of 40 lawmakers opposed the bill, and the remaining 44 abstained from the voting.

The pension reform came amid growing public concern that people may not be compensated as promised due to the shrinking population. Fewer people means less revenue will be collected in the National Pension Service’s reserve.

The newly inserted provision stipulates that the law "ensures sustainable and stable pension payments and aims to restore public trust in the national pension system.”

In Korea, those 18 or above and under 60 must pay a certain amount of their income into the state pension scheme, except those without income.

In the new scheme, every individual insured by the National Pension Service and their employers will be required to pay an amount equivalent to 13 percent of each employee’s monthly salary. Specifically, employees will pay 6.5 percent of their monthly income while their companies will cover the remaining 6.5 percent.

The contribution rate hike will be completed gradually over the next eight years, starting next year with an annual 0.5-percent rise.

People are seen inside a regional office of the National Pension Service in Seodaemun District in western Seoul on March 20. [NEWS1]

The latest bipartisan move defends the income replacement rate from further decline.

The new threshold will guarantee that people will receive a monthly pension equivalent to 43 percent of the average monthly salary of all payers.

When the National Pension Service was established in 1988, the income replacement rate was 70 percent. The figure was lowered to 60 percent in 1998 and 50 percent in 2007. It was expected to reach 40 percent by 2028 if not for the latest pension reform — the third pension reform in history.

The amendment expands benefits for soldiers and families with children.

The government will recognize a 12-month insured period for conscripts, an extension from the current six months.

The insured period matters because people whose insured period exceeds 10 years are eligible to receive monthly pension benefits from their 60s. Otherwise, the insured should receive their previous payments in a lump-sum payment.

The new bill abolished a 50-month cap that limited recognition of insured periods to 50 months for families with multiple children.

With the reform, the first and second children will allow their parents to receive 12 months of recognition, respectively. Subsequent children will add 18 months of recognition to their parents without an upper limit.

The government will subsidize 50 percent of pension payments for 12 months for self-employed individuals from low-income families.

Lawmakers pass a bill to establish a special committee for pension reform during a plenary session at the National Assembly in western Seoul on March 20. [NEWS1]

Earlier in the day, PPP floor leader Kweon Seong-dong and his DP counterpart Park Chan-dae agreed on the parametric reform in the national pension scheme during a bipartisan meeting presided over by National Assembly Speaker Woo Won-shik.

Later, the Health and Welfare Committee and the Legislation and Judiciary Committee reviewed and passed the bill before voting in the plenary session.

On the same day, lawmakers passed a bill establishing a special parliamentary committee for pension reform.

The committee will craft details of the pension reform and discuss how to improve other income security systems tied to the national pension scheme, such as basic and retirement pensions. It is also expected to devise solutions to strengthen financial stability.

With the chairmanship given to the PPP, six PPP lawmakers, six DP lawmakers and one from other minor parties will participate in the committee. Although their activity is set for this year alone, it can be extended if necessary.

Parliamentary Speaker Woo said today’s plenary session was historically significant as rival parties successfully passed bills related to pension reform. The speaker said the passage marked “significant progress” in pension reform, which is complicated in nature, noting the bipartisan effort came while the relationship between the two parties was strained.

BY LEE SOO-JUNG [[email protected]]