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Rival parties agree to special committee on pension reform

Published: 26 Feb. 2025, 19:02

SHIN HA-NEE
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From left: People Power Party (PPP) floor leader Rep. Kweon Seong-dong, National Assembly Speaker Woo Won-shik and liberal Democratic Party (DP) floor leader Rep. Park Chan-dae pose for a photo ahead of a meeting in western Seoul on Feb. 26. [JOINT PRESS CORPS]

Korea’s two major political parties agreed to launch a special committee on national pension fund reform, one of the country’s most contentious economic issues blighted by rising concerns about its sustainability.

The decision came on Wednesday, after conservative People Power Party (PPP) floor leader Rep. Kweon Seong-dong and liberal Democratic Party (DP) floor leader Rep. Park Chan-dae convened a meeting at the National Assembly in western Seoul. Further discussions will be held during a four-way policy consultation meeting slated for Friday, attended by acting President Choi Sang-mok, National Assembly Speaker Woo Won-shik and the two floor leaders.

The announcement could be considered progress, as the parties have been locked in a persistent impasse over the direction of reform.

The point of contention involves two critical issues: the introduction of an "automatic adjustment mechanism," which would calculate pensions based on life expectancy and changes in the number of contributors, and the scope of increase in “the combined income replacement rate,” meaning the amount of the pension received relative to the recipient’s income before retirement.

The implementation of the automatic adjustment mechanism was first proposed by the Yoon Suk Yeol administration in September to extend the sustainability of the sovereign fund as Korea struggles with a rapidly aging population. The proposal was met with strong backlash from the DP as it may reduce the amount of the pension paid out when the number of subscribers declines and life expectancy increases.

A branch of National Pension Service in northern Seoul [YONHAP]

While DP leader Lee Jae-myung reportedly expressed his willingness to accept the mechanism during the Feb. 20 meeting — on the condition that an adjustment is implemented only upon approval by the National Assembly — the DP's chief policymaker, Rep. Jin Sung-joon, said on Monday that “the issue should be discussed with prudence,” signaling the party’s continued reluctance to accept the plan.

“Without the automatic adjustment mechanism, [pension reform] would only be a stopgap measure,” National Assembly Deputy Speaker Joo Ho-young told reporters on Wednesday.

The PPP and DP also remain at odds over the combined income replacement rate, which decides the amount of the pension payment for subscribers in the future, as the former aims to raise the figure from the current 40 percent to a range between 42 to 43 percent, while the latter advocates for a range between 44 and 45 percent.

The increase in benefits follows an increase in contributions from subscribers, which both parties agreed to raise from the current 9 percent of subscribers' monthly incomes to 14 percent to enhance the state fund's sustainability.

The government has long been trying to reform the national pension fund as Korea’s slowing economic growth and aging population are expected to accelerate its depletion, which operates under a system that permits subscribers to receive partial payments before 65 or their full amount after reaching that age.

According to a report released by the National Assembly Budget Office on Monday, the National Pension Service’s reserve fund is expected to peak in 2039 at 1.937 quadrillion won ($1.352 trillion), before beginning to shrink in 2040. The office projected the fund would be depleted by 2057.

BY SHIN HA-NEE [[email protected]]