Minister Cho Kyu-hong, "National Pension, Sustainability Crisis... Now Is the Right Time for Reform"

Attendance at National Assembly Pension Special Committee... "Inadequate Adequate Old-Age Income Security" Pointed Out

Minister of Health and Welfare Cho Kyu-hong is reporting on work at the Special Committee on Pension Reform held at the National Assembly in Yeouido, Seoul, on the afternoon of the 6th. [Image source=Yonhap News]

[Asia Economy Reporter Jo In-kyung] Cho Kyu-hong, Minister of Health and Welfare (photo), reiterated the necessity of pension reform, stating, "Concerns over the depletion of the National Pension Fund and the increasing financial burden of the Basic Pension have raised a sustainability crisis."

Minister Cho appeared before the National Assembly's Special Committee on Pension Reform on the afternoon of the 6th and said, "Pension reform is an urgent task that can no longer be postponed, and with social interest in pension reform higher than ever, now is the right time for pension reform."

He evaluated the National Pension by saying, "There are several difficulties such as people unable to enroll in public pensions or receiving low pension benefits, resulting in inadequate proper old-age income security functions, and issues of intergenerational equity and fairness being raised."

The Ministry of Health and Welfare presented key issues and tasks for pension reform in the work report submitted to the National Assembly that day, including ▲ adjustment of contribution rates ▲ adjustment of pension eligibility age ▲ adjustment of the income replacement rate of the National Pension ▲ linking discussions on National Pension reform and Basic Pension.

In particular, citing the shortening of the fund depletion timeline due to changes in the economic environment and demographic structure such as low growth, low birthrate and aging population, and rising elderly dependency ratio, the ministry stated that discussions on adjusting contribution rates are necessary to enhance the financial sustainability of the National Pension.

South Korea's National Pension contribution rate started at 3% in its first year of implementation in 1988 and rose to 9% in 1998 but has remained unchanged for 24 years since. This is half the OECD average of 18.2%.

The need to adjust the income replacement rate was also mentioned. Currently, the income replacement rate for an average income earner who has contributed to the National Pension for 40 years is set at 40%, but the actual average contribution period is only 18.7 years, resulting in an effective income replacement rate of 22.4% as of 2020.

The ministry recently completed the formation of three committees for the 5th National Pension financial calculation and has begun full discussions. By March next year, long-term financial projections for the National Pension will be derived, and based on discussions with the National Assembly Pension Special Committee and the financial calculation committees, a comprehensive operational plan will be established by October.

Minister Cho said, "I hope that in this National Assembly Pension Reform Special Committee and the private advisory committee, in-depth discussions and reform measures will be proposed regarding the four major public pensions and the Basic Pension that constitute our country's old-age income security system."

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