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Major pension reforms to increase contribution rates, benefits to take effect in 2026

Published: 29 Dec. 2025, 21:24 Updated: 30 Dec. 2025, 19:04

A person is seen receiving consulting on pensions at the northern Seoul office of the National Pension Service in Seodaemun District, western Seoul, on Dec. 9. [YONHAP]

Major reforms to the national pension system will take effect next year, including increases in both contribution rates and payout levels. Benefits for childbirth and military service credits will expand, and income-based pension reductions for working older recipients will be eased.

Several provisions of the National Pension Act will be revised next year as part of the first pension reform in 18 years, according to the Ministry of Health and Welfare on Monday.

Beginning in 2026, the contribution rate and income replacement rate — the percentage of a retiree’s average lifetime income paid out as a pension — will be raised. The current contribution rate of 9 percent and replacement rate of 41.5 percent will increase to 9.5 percent and 43 percent, respectively.

For example, an employee earning the average monthly income of 3.09 million won ($2,160) will pay an additional 7,700 won per month. Self-employed contributors will pay an additional 15,400 won.

This is the first time the contribution rate will rise since 1998. The rate will continue to increase by 0.5 percentage points each year until it reaches 13 percent in 2033.

The income replacement rate was originally set to gradually decrease to 40 percent by 2028. Under the reform, it will instead increase. For someone earning 3.09 million won per month who begins contributing in 2026 and stays enrolled for 40 years, the monthly pension will rise from 1.237 million won to 1.329 million won — a 92,000-won increase.

Visitors at a job fair for older citizens are seen at Setec, an exhibition and trade center, in Gangnam District, southern Seoul, on Nov. 18. [YONHAP]

The changes do not apply to those who have already retired and completed their contribution period. A new clause in the law also formally guarantees the state’s obligation to pay national pension benefits.

Support measures for young and low-income earners will be expanded. Currently, childbirth credits — which recognize child-rearing periods as contribution periods — grant 12 months for a second child and 18 months for a third, up to a maximum of 50 months. Starting next year, parents will receive 12 months for the first child and 18 months for the third, with no upper limit.

This change increases future retirement income for parents with multiple children, and for the first time, provides a credit for the birth of a first child.

The credit for military service, currently capped at six months, will be extended to 12 months next year. The Health Ministry plans to further expand it to the full period of military service by 2027, citing income restrictions during service and public consensus on the issue.

Minister of Health and Welfare Jeong Eun-kyeong speaks during a ministry meeting on the national pension system at the government complex in Jongno District, central Seoul, on Dec. 15. [NEWS1]

From next year, local contributors earning less than 800,000 won per month will receive up to 37,950 won in monthly contribution support. The number of recipients is expected to rise from 193,000 this year to 736,000 in 2026.

Elderly recipients who continue to work will also benefit. Previously, if a recipient’s employment or business income exceeded the average contributor income — currently 3.09 million won — their pension was reduced. Starting in June next year, the income threshold will rise by 2 million won.

For instance, a retiree earning 3.5 million won per month currently receives a pension reduced by 20,500 won, five percent of the amount exceeding the threshold.

Under the new rule, the same recipient will receive their full pension, since their income falls below the new threshold of 5.09 million won.

An older woman is seen at her home in Dongdaemun District, eastern Seoul, on Dec. 18. [KIM JONG-HO]

The change reflects growing criticism that reducing pensions due to continued employment is unfair.

Meanwhile, the Health Ministry expects the national pension fund to post a return of around 20 percent this year, based on provisional figures as of December. That would be the highest since the fund’s inception in 1988, surpassing last year’s return of 15 percent.

Returns were highest from domestic stocks at 78 percent, followed by overseas stocks at 25 percent and alternative investments at 8 percent.

A plaque reading "seniors pensions" is seen at the northern Seoul office of the National Pension Service in Seodaemun District, western Seoul, on Dec. 9. [YONHAP]

The fund's total assets have also grown significantly, reaching 1.47 quadrillion won this month — up by 260 trillion won from 1.21 quadrillion won at the end of last year. Final figures, including valuations of alternative assets, will be released in February next year.

“With the adjustment in contribution rates and improved investment returns, the system’s sustainability will be enhanced,” said Minister of Health and Welfare Jeong Eun-kyeong. “Expanded credits for childbirth and military service, and reductions in benefit cuts, will also strengthen retirement income.”

She added, “We will continue efforts to improve the system and build public trust in the national pension.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY JUNG JONG-HOON [[email protected]]