[News Terms] Yoon Seok-yeol Government's Pension Reform Direction: 'Parameter Reform'

[Asia Economy Reporter Kim Jong-hwa] 'Parameter reform' refers to directly changing related figures such as raising the National Pension insurance premium rate, lowering the income replacement rate, and adjusting the pension benefit starting age upward. In other words, it is a pension reform that secures the sustainability of finances by adjusting the core variables of the pension system, such as the insurance premium rate and income replacement rate, while keeping the existing pension system framework intact.

Simply put, it is a reform concerning how much to pay and how much to receive later. Currently, South Korea's National Pension insurance premium rate is 9%, and the income replacement rate is 42.5%. The income replacement rate has been gradually lowered by 0.5 percentage points annually since the National Assembly decided in 2007 to reduce it from the previous 60% to 40% by 2028.

The actual average National Pension benefit amount was only about 550,000 KRW as of the end of 2021. About half of the pension recipients receive much less than that. Among the OECD countries, South Korea's National Pension 'net income replacement rate' ranks among the lowest at 31.2%.

Police clashed with protesters in Paris, France, where the second protest against the government's pension reform took place.
[Photo by Reuters Paris / Yonhap News]

The income replacement rate is a key issue in the pension reform pledged by the Yoon Suk-yeol administration. There are conflicting opinions between those who argue that the income replacement rate should be raised to ensure old-age living security and those who believe it should be maintained or reduced considering the basic pension. Since the income replacement rate is gradually decreasing, overcoming the anxiety that the National Pension cannot properly guarantee old-age security is said to be the key to pension reform.

Along with parameter reform, another method of pension reform called 'structural reform' literally changes the structure of the pension system itself. A representative example is the discussion of integrating the four major occupational pensions: National Pension, Government Employees Pension, Military Pension, Private School Teachers Pension, and Special Post Office Pension. Since not only the National Pension but also other occupational pensions are already difficult to operate solely with insurance premiums, there is a proposal to link them together to prepare countermeasures and, in the long term, integrate them into the National Pension.

This content was produced with the assistance of AI translation services.