March 21, 2025
SEOUL – South Korea’s parliament passed a revision Thursday to reform the national pension scheme, which involves the gradual hike of pensioners’ contributions to the public pension fund reserve for the first time in 28 years, beginning in 2026, in order to slow the fund’s depletion.
After months of gridlock, the National Assembly voted 193-40 in favor of a revision bill of the National Pension Act at the plenary session, which followed a bipartisan agreement earlier the same day. Forty-four lawmakers abstained from the vote.
It would be the country’s first major step since the last reform in 2007 to improve the financial sustainability of its mandatory state pension fund under the National Pension Service.
The scheme with 1,212.9 trillion won ($830.8 billion) as of the end of 2024 has served as the backbone of the state-led postretirement welfare system for the past few decades. However, the government projected the fund to be depleted by 2056 as of 2023 if there are no reforms, amid Korea’s low birth rate and rapid aging.
Under the proposed scheme that reached a National Assembly compromise on Thursday, an eligible worker’s contribution rate in proportion to their income will begin to rise gradually by 0.5 percentage points each year, from 9 percent in 2025 to 13 percent in 2033. This gradual hike means the contribution rate hike to 9.5 percent will be implemented in 2026.
The income replacement rate — the percentage of a worker’s preretirement income paid out as a pension, for those who have contributed to the reserve for 40 years and receive pension income starting at the age of 65 — will rise to 43 percent of preretirement annual income starting in 2026. The rate currently stands at slightly over 40 percent.
The major parties also agreed to grant pensioners eligibility for a higher postretirement pay rate without contributing to the pension, as a reward for having their first child, through a 12-month “noncontributory credit period” offered by the NPS. These rewards had previously been extended to families with at least two children only.
Such a period of noncontributing would also be applied to those who served in the military, by considering them pensioners who had already contributed for 12 months without having them contribute to the fund. The noncontributory period of six months has been applied to those who completed the military service.
Rep. Park Ju-min of the main opposition Democratic Party of Korea, who chairs the parliament’s health and welfare committee, hailed the bipartisan compromise.
“The burden on future generations is growing as the day goes by,” he said at the plenary session Thursday.
Some lawmakers, especially those of minor parties, had second thoughts about the proposal.
Among them was Rep. Chun Ha-ram of the minor New Reform Party. He regretted the parliament’s failure to introduce an automatic balancing mechanism through the pension reform proposal to further boost sustainability by adjusting the pension parameters in accordance with the increase in life expectancy.
Failure to introduce the mechanism that was proposed by the government “is like allowing parents to empty their children’s piggy banks, which cannot be justified,” Chun said.
Also on Thursday, a separate motion to establish a special parliamentary committee dedicated to the legislation needed to implement the pension reforms passed with 219 lawmakers in favor out of 239 who took part in the vote. The 13-member committee will operate until the end of 2025.
Thursday’s news is a major breakthrough as the parliamentary talks over the pension reform to slow the fund depletion had been stalled, after the Yoon Suk Yeol administration came up with its latest proposal in September, which had the income replacement rate rising to 42 percent of preretirement income by 2026.
This follows a tentative agreement between the government and the rival parties on Wednesday.
As of 2023, nearly half of South Korea’s total population of nearly 52 million were contributing to the plan, while about 13 percent were beneficiaries of the plan aged 65 or older.
Since the introduction of the National Pension Service in 1988, South Korea has gone through reforms in 1998 and 2007 to ensure the fund’s sustainability.
In 1998, the contribution rate rose from 3 percent to 9 percent, while revising down the 40-year income replacement rate from 70 percent to 60 percent, effective until 2007. The 2007 reform sought to gradually cut the income replacement rate from 50 percent in 2008 to 40 percent by 2028.