[Initial Insight] Pension Reform: Convincing the Public Comes Before OECD Warnings

The Organisation for Economic Co-operation and Development (OECD) has proposed reforming South Korea's National Pension system to a "pay more, receive more" model. This means increasing the monthly contributions during the subscription period and raising the upper limit of the standard monthly income when receiving pensions to get more benefits. It also recommended raising the current pension eligibility age from 62 to 68. The government had already planned to extend the pension starting age to 65 by 2033, but the OECD suggests delaying it by an additional three years. As the mandatory pension subscription age rises, citizens may have to continue paying premiums even after age 60.

The OECD's proposal is ultimately due to demographic changes caused by low birth rates and aging. South Korea became an aged society in 2017, with 14% of the total population aged 65 or older, and by 2025?just eight years later?it will enter a super-aged society where more than one in five people is elderly. The eight-year transition from an aged to a super-aged society is an unprecedentedly rapid pace worldwide.

However, this OECD recommendation is not entirely new. At first glance, it may seem different from the pension reform direction of the Yoon Seok-yeol administration, which has mentioned "pay more, receive less" type parametric reforms, but ultimately, it demands more burden and sacrifice from current contributors. It adds a sense of expectation that pension amounts will increase when benefits are eventually received, making it seem like a less unfavorable choice.

Nonetheless, the OECD warns that South Korea's National Pension problem is so precarious that urgent, strong reforms are needed even from an external perspective. The promotional slogans from the late 1980s when the National Pension was introduced, promising to secure our old-age life, have lost their meaning. Currently, South Korea's elderly poverty rate is 38.9%, three times the OECD average of 13.5%, and the average National Pension payment of 570,000 KRW is considered pocket money rather than sufficient for elderly livelihoods. Due to the world's lowest birth rate, under the current system, the National Pension is expected to be depleted between 2055 and 2057. This means that those born in 1990, currently 32 years old, may not receive a single pension won from 2055 when they turn 65.

Concerns about the depletion of the National Pension fund have been ongoing, but no proper reforms have been attempted so far. The previous government considered raising the pension contribution rate from the current 9% to 12-13%, but discussions stalled due to public opinion. After the Yoon Seok-yeol administration took office, a bipartisan National Pension Reform Special Committee was launched by agreement at the end of July, but internal political conflicts and partisan disputes have prevented even the first meeting from being held for over two months. The Ministry of Health and Welfare formed the "National Pension Financial Projection Expert Committee" on the 30th of last month, and only on the 21st of this month was the "National Pension Financial Calculation Promotion Team," involving working-level staff, established, marking the start of the 5th National Pension financial calculation.

The problem is that as pension reform efforts intensify, they will face considerable opposition and resistance. Especially among young people, who have a long way to go before receiving pension benefits but face increasing contribution burdens, complaints like "Why do only we have to bear so much cost?" are inevitable. The key is to persuade the public that delaying pension reform only increases the burden they will eventually have to pay and to build a national consensus on the necessity of reform. Above all, to avoid being swept up in populism ahead of the 2024 general election, the big picture of pension reform must be completed by next year at the latest. Even without the OECD's warning, this is why the government, politicians, experts, and citizens must come together now to find rational and sustainable solutions and accelerate pension reform.

Jo In-kyung, Deputy Head of Biohealth Department ikjo@