Frozen National Pension Contribution Rate for 27 Years... "Must Quickly Raise from 9% to 13%"

Korea Institute of Finance Report: "Reviving the Spark of Pension Reform"
Differentiated Premium Increase Rates by Generation Is Desirable
Opposes Plan to Raise Nominal Income Replacement Rate to 42%
Calls for Earlier Introduction of the "Automatic Adjustment Mechanism"

A call has been made to promptly raise the National Pension insurance premium rate, which has been frozen for 27 years since 1998.

According to the Korea Institute of Finance on the 12th, Senior Research Fellow Kim Byung-deok pointed this out in a report titled "Reviving the Spark of Pension Reform." The government announced a reform plan last September to raise the premium rate from the current 9% to 13%, with differentiated increase speeds by generation. The National Pension insurance premium rate was raised from 3% at its introduction in 1988 to 6% in 1993, and then to 9% in 1998, and has remained unchanged since.

Kim said, "There is an aspect of having missed the right timing to raise the premium rate," adding, "Even if the premium rate is raised to 13%, it is an insufficient level to guarantee the long-term sustainability of the pension system. However, considering the urgency of raising the premium rate, it is more important to promptly implement the increase to 13% and not miss the timing."

According to the government reform plan, the speed of increase will vary by generation when raising the premium rate to 13%. For those in their 50s, it will increase by 1 percentage point (P) annually, while for those in their 20s, it will increase by 0.25 percentage points annually. Kim analyzed, "Although there is criticism of 'division between generations,' this is a desirable direction to somewhat reduce intergenerational unfairness and encourage the participation of younger generations in pension reform."

However, he opposed the plan to raise the nominal income replacement rate, which refers to the ratio of pension amount to average income during the National Pension subscription period, from the current 40% to 42%. Kim pointed out, "Raising the income replacement rate risks expanding the biggest problem of the National Pension, which is long-term financial instability," calling it "an undesirable political compromise by the government."

He argued that the introduction of an "automatic adjustment mechanism," which automatically adjusts the premium rate and income replacement rate according to demographic and economic conditions, should be brought forward. The government has proposed 2036 (when benefit expenditures exceed premium income), 2049 (five years before fund depletion), and 2054 (start of fund depletion) as introduction points.

Kim stated, "It will already be too late once the pension finances worsen visibly as benefit expenditures exceed premium income," and mentioned, "The current mandatory subscription upper age limit of 59 should be extended by about five years to 64, in line with labor market reforms."

He added, "Although all economic structural reform issues have been overshadowed amid the impeachment political crisis, pension reform is the most urgent task," and emphasized, "Even at this moment when pension reform is delayed, the burden on future generations is steadily increasing."