Young generation’s pension discontent must be addressed through structural reform

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Young generation’s pension discontent must be addressed through structural reform

Published: 26 Mar. 2025, 00:00 Updated: 26 Mar. 2025, 17:42

Audio report: written by reporters, read by AI

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

The People Power Party (PPP) has announced plans to assign a significant number of lawmakers in their 30s and 40s to the National Assembly’s special committee on pension reform. This move comes in response to growing dissatisfaction among young people after the ruling and opposition parties passed an amendment to the National Pension Act on March 20, which adopts the principle of “paying more to receive more.” This marks the first pension reform in 18 years since 2007. Until the last minute, the ruling and opposition parties clashed over the income replacement rate, but the bill narrowly passed the plenary session after the Democratic Party (DP) unexpectedly accepted the PPP’s stance of maintaining it at 43 percent. However, immediately after the agreement was finalized, some in the ruling bloc began calling for acting President Han Duck-soo to exercise his veto power. Young lawmakers from both parties have voiced their frustration, arguing that “the benefits go to the older generation while the burden is shifted onto the younger generation.”

A closer look at the pension reform plan reveals why younger generations are frustrated. The reform raises the contribution rate from 9 percent to 13 percent while increasing the income replacement rate from 41.5 percent this year to 43 percent next year. The issue is that while the increase in the replacement rate happens immediately, the contribution rate will be raised gradually over eight years by 0.5 percentage points annually, beginning next year. This has led to criticism that the reform favors those in their 50s and older, who will soon start receiving pensions.

That said, calls from some politicians to scrap the agreement over certain shortcomings are excessive. Former PPP lawmaker Yoo Seung-min argued on social media Tuesday that “raising the income replacement rate to 43 percent is the most toxic provision of this amendment” and urged acting President Han to veto it. Similarly, former PPP leader Han Dong-hoon criticized the reform, saying, “The 86-generation(those who went to college during 1980s and those who were born in 1960s), who will start receiving higher pensions immediately, are reaping all the benefits, while the younger generation, who will have to pay increased contributions for decades before they can receive anything, is left with the burden.” Yoo also warned that “once the income replacement rate is raised, lowering it again will be extremely difficult,” a point that carries some validity. However, does that mean the pension reform — achieved after 18 years of stalemate — should be scrapped? Given that the pension fund’s deficit is growing by 85.5 billion won per day, extending the fund’s depletion date from 2056 to 2064 through this reform is no small achievement. If the government succeeds in increasing the fund’s investment return rate by one percentage point as planned, the depletion date could be pushed back by an additional 15 years.

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 scheme at the National Assembly in western Seoul on March 20. [NEWS1]

Breaking the agreement to raise the contribution rate for the first time in 28 years would only make the future even bleaker for younger generations. If some politicians truly believed this reform was the worst possible outcome, they should have persuaded their parties during the negotiation process. While criticisms of the reform’s shortcomings should be taken seriously, further structural reform must follow — such as introducing an automatic adjustment mechanism that accounts for economic and demographic changes and comprehensively reviewing the basic pension and civil servant pension systems. Young lawmakers should be given opportunities to participate in the special committee on pension reform to address these issues. Calling for the repeal of a hard-won reform without presenting a viable alternative is nothing more than an irresponsible move that would only increase the burden on future generations.

Translated using generative AI and edited by Korea JoongAng Daily staff.