National Assembly Speaker Woo Won-shik (center) poses for a photo with Kweon Seong-dong (left), floor leader of the ruling People Power Party, and Park Chan-dae, floor leader of the main opposition Democratic Party of Korea, during their meeting at the National Assembly in Seoul on March 20. Reporter Park Min-kyu

As the pension reform bill passed the plenary session of the National Assembly on March 20, the "parametric reform" that adjusts figures, such as how much people pay and how much they receive, succeeded for the first time in 18 years. The reform has been met with mixed reviews, with some saying it's “good to see it done before it's too late” and others criticizing it for “neglecting retirement income security.”

The core of the reform can be summarized as “pay more, and receive more.” The pension contribution rate would rise to 13 percent from the current 9 percent, and the income replacement rate would rise to 43 percent from the current 40 percent of the average pre-retirement income.

Specifically, the contribution rate for a new subscriber with an average income of 3.09 million won per month will increase by 124,000 won per month in 2026. A company pays half of this amount for each of its employees. Assuming that a person newly subscribes to the fund for 40 years next year and receives a pension for 25 years, he or she will pay about 50 million won more and receive about 20 million won more. The monthly pension amount in the first year will increase from some 1.24 million won to 1.33 million won.

The total premiums paid by subscribers will increase from 133.49 million won to 187.62 million won, and the total pension amount will increase from 293.19 million won to 314.89 million won. Low-income district subscribers will get 50 percent support of insurance premiums for 12 months, and the National Pension Act also reflected the “stipulation of payment guarantees” that the state guarantees stable and continuous payments of the national pension.

The credit system, which recognizes periods of national pension subscription as compensation for socially valuable actions, has also been expanded. The military service credit increased to 12 months from the current six months, and the maternity credit, which recognizes a subscription period of up to 50 months depending on the number of children, is now 12 months for the first and second child and 18 months for the third child. The upper limit was abolished.

The government's proposal announced in September last year suggested recognizing the entire period of military service as a credit, but it was limited to 12 months in the amendment. Oh Gun-ho, co-head of the My Welfare State, criticized the proposal, saying, "Why do the country only recognize some periods when men can't pay their pension because they can't work regardless of their will within the entire period of the military service?" On the other hand, Kim Hak-joo, a professor of social welfare at Dongguk University, argued that the expansion of the maternity credit “may have a reverse income redistribution effect, given the reality that wealthier people are more likely to have multiple children,” and that “young people will bear a greater burden than now.”

This is the 18th pension reform since 2007 and the third since the introduction of the national pension in 1988. However, the structural reform, which would link the national pension to basic, retirement, and individual pensions to create a multi-layered income security system, remains as a challenge.

The National Assembly also approved the establishment of a special committee on pension reform to discuss the structural reform. The committee can work only until the end of the year. The committee will also discuss whether to introduce an “automatic adjustment system” that automatically adjusts the pension contribution rate, income replacement rate, pension amounts, and age of receiving pensions based on the demographic structure and economic conditions. The government estimates that the automatic adjustment system will delay the exhaustion of the national pension fund by up to 2077. The ruling People Power Party (PPP) is in favor of the introduction, while the main opposition Democratic Party of Korea (DPK) is against it.

Seok Jae-eun, a professor of social welfare at Hallym University, said, “The automatic adjustment system is universally adopted in 24 countries, but the situation is different from Korea because the pension burden structure in those countries is already balanced in such a way that people receive as much as they pay.” On the other hand, Yoon Seok-myung, an honorary research fellow at the Korea Institute for Health and Social Affairs, said, “Under the structure of ’43 percent income replacement rate and 13 percent contribution rate,’ it is inevitable that the cumulative deficit will increase,” adding, “The introduction of the automatic adjustment system is inevitable to maintain the Korean community.”

Professor Seok said, “It's a delayed reform, but I'm glad it has been finally agreed upon,” adding, ”It's a reform that falls short of the original plan in terms of financial stability and income security, but it lays a stepping stone in the direction of future reforms.”

The Public Pension for All, on the other hand, said, “We strongly condemn the rushed agreement of the two major parties that will push people into poverty in their old age.” Nam Chan-seop, a professor of social welfare at Dong-A University, criticized the amendment, saying, “According to the amendment, an average income earner will receive a pension of 1.32 million won per month after 40 years of contributions, which is less than the minimum cost of living after retirement (1.36 million won) calculated by the National Pension Research Institute.”