Pension reform deadlocked over 1 percentage point gap

The ruling People Power Party and the main opposition Democratic Party of Korea remain at odds over the national pension reform proposal, failing to bridge a one percentage point difference in the income replacement rate—the metric determining retirees’ benefits. Last week’s four-party national consultation, attended by leaders of both camps and the government, yielded no resolution on the issue. Although a working-level meeting is scheduled this week in an effort to reach an agreement, prospects remain uncertain. There are mounting fears that an impeachment ruling against President Yoon Suk Yeol could trigger a political upheaval that derails the painstakingly crafted reform.

In a notable shift, the Democratic Party of Korea has signaled its willingness to accept the government’s proposal to introduce an automatic adjustment mechanism for the national pension—provided it secures National Assembly approval. The mechanism, already adopted by several advanced European nations and Japan, automatically adjusts premium rates, and the scale of income replacement increases in response to factors such as enrollment, growth rates, and inflation. It is designed to reduce the political and social friction that typically accompanies rate adjustments. Opposition lawmakers had long warned that the measure would ultimately lower pension benefits, but they now appear more receptive to the idea.

Both parties have agreed to raise premium contributions from the current 9% to 13%. With a breakthrough on the previously contentious issue of the automatic adjustment mechanism, hopes for a comprehensive reform have grown. Yet the remaining sticking point is the income replacement rate, with the People Power Party steadfast on a 43% rate while the Democratic Party of Korea advocates for 44%.

Government estimates indicate that setting the income replacement rate at either 43% or 44% would exhaust the national pension fund around 2064—roughly eight years later than the 2056 depletion projected under the current system. However, opting for a 44% rate would marginally increase the burden on future workers, requiring them to contribute 38.3% of their income toward pensions after the fund’s depletion, compared with 37.5% under a 43% rate.

Neither proposal offers a silver bullet for the pension crisis. Yet if the current system—unchanged since 2007—remains in place, the national pension could eventually become a ticking time bomb for society. Despite the urgency, the Moon Jae-in administration halted reforms on the grounds that the reform did not align with public expectations, and President Yoon Suk Yeol deferred the issue to the next National Assembly just before a bipartisan consensus was within reach. Such irresponsible political inaction on a matter that will shape the nation’s future cannot be allowed to recur.