In a significant shift, the South Korean government has proposed its first increase in pension contributions in 27 years. Starting in 2025, the mandatory national pension contribution rate will rise from 9% to 13%. This reform aims to extend the life of the public pension fund by at least 16 years.
Challenges Facing the National Pension System
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The proposal comes as South Korea grapples with low birth rates and an aging population, threatening the financial stability of its national pension system. The pension fund, valued at approximately 1,147 trillion won ($855 billion), is projected to be depleted by 2056 under current contribution rates.
Key Features of the Proposed Reform
The proposed reform includes a phased increase in the contribution rate, with the full 4 percentage point rise expected by 2029 for those aged 50 and older. Additionally, the reform introduces an automatic balancing mechanism to adjust pension spending based on economic conditions and demographic changes.
Increased Pension Payments and Basic Pension Adjustments
The reform also plans to increase pension payments from 40% to 42% of average income by 2028. Furthermore, the basic pension payout for low-income seniors will rise to 400,000 won per month. The government will also propose eligibility adjustments for the basic pension scheme.
Political and Legislative Hurdles
The reform faces challenges in Parliament, where opposition parties have criticized the proposal. The main opposition party argues that the plan undermines previous discussions and risks divisiveness.
Future Outlook
If approved, these measures aim to safeguard the pension fund’s future, ensuring financial stability for South Korea’s retirees. The government is set to present legislative changes in 2025 and secure the necessary state budget by 2026.
Source – koreaherald