**[Social Korea] Claims to reduce national pension despite youth instability don’t add up**
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The national pension reform bill passed the National Assembly on the 20th. As a result, the insurance premium rate will increase from the current 9% to 13%, and the income replacement rate will be adjusted to 43% starting next year. The income replacement rate was initially set to decrease by 0.5 percentage points annually, reaching 41.5% this year and scheduled to decrease to 40% by 2028, but it will now be fixed at 43%. This parameter reform, which takes a “pay more, receive more” approach, was enacted for the first time in 18 years since 2007.
What does the 2025 pension reform mean? Broadly, I assess this reform as a failure to steer our society away from the longstanding path of low pensions and elderly poverty. This reform only prevented the deterioration of public pension guarantees but did not induce a systemic shift to reverse the prevalent low pension and retirement insecurity.
In Korean society, the 40% elderly poverty rate is no longer shocking. Economic instability in later life is taken for granted. At the heart of this is the chronic low pension issue. Despite decades passing since the national pension’s inception in 1988, we have not veered away from the low pension elderly poverty path.
A majority opinion from the pension reform public forum advocated for strengthening national pension guarantees, represented by a 50% income replacement rate, to enhance the social security system’s income redistribution effect and move away from the long-standing route of elderly poverty.
Faced with the decision to either continue or change this low pension path, the 2025 pension reform chose a passive course. Superficially, this reform might appear significant for halting the trend of national pension reductions that have persisted for decades. However, the income replacement rate increase is too small to transform society, and its impact is limited.
This reform effectively prevents future pension recipients from receiving lower benefits despite paying premiums for longer periods. With an income replacement rate of 40%, future pensioners in 2040 and 2050 could receive lower pensions despite longer participation in the national pension system compared to current recipients. Raising the income replacement rate slightly ensures that pensions for the younger generation are on par with current recipients. Additionally, compared to the quick policy of increasing the premium rate by 0.5% each year from 9% to 13%, the income replacement rate’s increase is disproportionately small.
**Failure to secure sufficient pension credits**
In 2025, childbirth credits, previously starting from the second child, will be granted 12 months from the first child. Military service credits will also be extended from six months to 12 months. While credit additions from the first child and for the full duration of military service were deemed essential reform measures regardless of differing perspectives, the actual expansion is limited. Recognizing only 12 months rather than the entire period of military service as part of the national pension subscription period is hard to justify, considering the social contributions and limitations on freedoms and rights that come with it. Some argue that expanding childbirth and military service credits negates the need to increase the income replacement rate, but the level of credit expansion remains minimal.
A plan to expand support for low-income regional subscribers’ insurance premiums is included but lacks specificity. While the needs of regional subscribers are pressing, given the government’s priority on limiting expenditures, the expectations for a bold expansion of support are unrealistic. Considering the age groups affected by credit expansions, the effects of increased military service credits will be realized around 2070, and childbirth credits around 2050.
A widely circulated fallacy claims that continually reducing the national pension’s income replacement rate is for the benefit of future generations. Politicians from both ruling and opposition parties and a few presidential hopefuls are using this argument to gain visibility by emphasizing generational division. They even claim that raising the income replacement rate to 43% steals from future generations. By this logic, it would be best to abolish the national pension entirely, leaving future retirees to rely fully on private pensions and family support.
Reducing the national pension exacerbates retirement insecurity for future seniors and today’s young generation. The national pension, with its strong redistribution mechanism favoring the middle class and below, makes its reduction particularly threatening to these groups. Claiming that the younger generation is poorer and more unstable while proposing to cut the national pension and make them rely more on private pensions favoring the wealthy is inconsistent.
More importantly, public pension financing is not evenly borne by all contributors. The greater the need for social security funding, the more necessary the principle of ‘capacity-based contributions’ becomes. As pension spending increases, it’s inevitable that high-income earners and capital bear more of the burden.
In mature pension systems, rarely is public pension finance fully covered by subscribers’ premiums. Like most European Union (EU) countries, there is considerable state support, or as in France, excess premiums are levied on income exceeding the contribution cap on employers and high-income workers, or capital pays a social solidarity tax, or like in the U.S., taxes from high pension recipients are reinvested into pensions. This approach should be considered for the future of South Korea’s pension finance. Simply reducing pension guarantees allows capital and financial authorities to shirk responsibility for securing citizens’ retirements.
**What should be done?**
Those crying out about plundering from future generations might call for a return to contractionary pension reform by introducing an automatic adjustment mechanism to the national pension. However, with pensions received by about 80% of recipients not reaching 800,000 won, such measures are unnecessary and impractical. Instead, labor market reform, including extending the retirement age to ensure that the elderly can properly work until they start receiving pensions, is necessary. To maintain the sustainability of pensions, the fact that half of pension reform is essentially labor reform needs recognition.
Inadequately strengthened guarantees remain a challenge. Failing to provide adequate retirement guarantees makes transformational societal reform impossible. While expanding credits is necessary for strengthening retirement security, their effects are too slow and limited, making an increase in the income replacement rate still crucial. Financially, there should be efforts to adjust the retirement insurance premium-sharing ratio between employers and employees in line with premium increases, impose excess premiums on income above the contribution cap, and make platforms responsible for employer contributions for non-wage workers like platform workers.
However, around the 2025 pension reform, we saw how individuals lacking philosophy or vision for retirement security or societal transformation were swayed by fiscal bureaucrats and preached generational division, eradicating the potential for broad social solidarity based on public pensions. It seems that changing the so-called political ‘personnel’ takes precedence over merely listing reform tasks.
### Author Introduction:
The author, Ju Eun-sun, is a professor specializing in social welfare at Kyonggi University. She has served as a member of the National Assembly’s private advisory committee on pension reform and the Economic, Social, and Labor Council’s special committee on national pensions and old-age income security.
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