'Younger Generation Pays Less, Depletion Point Delayed' Government to Propose Pension Reform Plan

The Presidential Office and the government will announce a National Pension reform plan emphasizing 'intergenerational equity' and 'sustainability.' The policy aims to strengthen fairness between generations by having the younger generation, who will receive pensions much later, pay less, while the generation about to receive pensions pays more.

According to the Presidential Office on the 15th, President Yoon Suk-yeol will announce a National Pension reform plan at the end of this month or early next month that includes raising the pension contribution rates differentially by generation and introducing an automatic stabilization mechanism.

This National Pension reform plan is expected to be announced during President Yoon Suk-yeol's national briefing scheduled for the end of this month or early next month.

So far, the National Pension reform discussions centered around the National Assembly have focused on parameter reforms, such as 'how many percentage points to raise the contribution rate and how many percentage points to reduce the income replacement rate.'

The ruling and opposition parties agreed on a contribution rate of 13%, but failed to narrow differences over the income replacement rate, which remains between 44% and 45%. However, even if the parties agree on the income replacement rate, it only delays the depletion of the fund by 7 to 8 years, highlighting clear limitations.

Currently, the National Pension applies a uniform '9% contribution rate' regardless of age. However, the government’s reform plan intends to apply different contribution rates depending on the generation.

[Image source=Yonhap News]

For example, if the contribution rate is to be raised to 13-15%, the middle-aged group might see an annual increase of 1 percentage point, while the younger generation might see an annual increase of 0.5 percentage points, adjusting the timing to reach the target contribution rate accordingly.

Additionally, to ensure the sustainability of the pension, an 'automatic financial stabilization mechanism' will be introduced.

This means that if the fund is at risk of depletion, the system will automatically increase contributions and reduce benefits within the National Pension system. However, detailed figures such as the target contribution rate will be finalized through discussions in the National Assembly.