{"id":2205390,"date":"2024-06-06T15:14:44","date_gmt":"2024-06-06T06:14:44","guid":{"rendered":"https:\/\/koreapro.org\/?p=2205390"},"modified":"2024-06-07T11:51:25","modified_gmt":"2024-06-07T02:51:25","slug":"political-deadlock-hinders-south-koreas-efforts-to-save-its-pension-system","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/06\/political-deadlock-hinders-south-koreas-efforts-to-save-its-pension-system\/","title":{"rendered":"Political deadlock hinders South Korea\u2019s efforts to save its pension system"},"content":{"rendered":"
Without substantial structural reforms, South Korea\u2019s National Pension Service (NPS) could be in <\/span>deficit by 2041<\/span><\/a> and risk <\/span>depletion by 2055<\/span><\/a> due to the country\u2019s rapidly aging population and shrinking workforce. This could potentially destabilize the nation’s capital markets and cause significant financial instability and societal disruption.<\/span><\/p>\n In 2007, South Korea overhauled its pension system, requiring employers and employees to contribute 9% of the employee\u2019s monthly earnings. By 2024, retirees turning 65 can expect to receive 42% of their wages as pension benefits.<\/span><\/p>\n However, despite both major parties agreeing to increase the contribution rate to 13%, disagreements over the income replacement rate percentage and the approach to reform \u2014 parametric versus structural \u2014 have hindered progress on this issue.<\/span><\/p>\n Parametric reforms involve adjusting numerical values within the existing framework, such as contribution rates or income replacement rates, to stabilize finances. In contrast, structural reforms entail fundamental changes to the system, such as altering payment structures or transitioning between different pension schemes.<\/span><\/p>\n Experts emphasize the necessity of implementing parametric reforms as an initial step while preparing for more comprehensive structural changes to address the ailing pension system\u2019s long-term sustainability.<\/span><\/p>\n BOGGED DOWN BY POLITICS<\/b><\/p>\n Pension reform has been a constant in President Yoon Suk-yeol\u2019s policy pledges since 2022. In May, Yoon <\/span>stated<\/span><\/a> his intention to raise the basic pension payment level to $290 (400,000 won) within his term.<\/span><\/p>\n However, <\/span>prolonged negotiations<\/span><\/a> between the ruling People Power Party (PPP) and the main opposition Democratic Party (DP) over adjustments to contribution rates and income replacement rates have hindered progress.<\/span><\/p>\n In Oct. 2022, the National Assembly established a special committee on pension reform through a bipartisan agreement. The plan was for a civilian advisory committee of experts to draft a reform proposal for the government to finalize by Oct. 2023.<\/span><\/p>\n However, differing opinions within the advisory committee on enhancing financial stability and ensuring retirement income security prolonged discussions and delayed reform. The DP has pushed for an initial parametric reform to address urgent issues, while the PPP has called for a comprehensive reform that includes both parametric and structural changes.<\/span><\/p>\n In Oct. 2023, the Ministry of Health and Welfare presented the <\/span>Fifth Comprehensive National Pension Draft<\/span><\/a>. However, it left out specific figures or directions on key reform issues, such as the contribution rate and income replacement rate, shifting the reform decision back to the National Assembly.<\/span><\/p>\n