Under the proposal, wage earners will be required to pay 13 percent of their income, compared with the current 9 percent. (Yonhap)
SEOUL, Sept. 4 (Korea Bizwire) – The government proposed raising the pension contribution rate to 13 percent from 9 percent and differentiating the pace of raising the contribution rate by age group, Health Minister Cho Kyoo-hong said, in what would be the biggest overhaul of the ailing pension system in 21 years.
Details of the proposal by the health ministry came less than a week after President Yoon Suk Yeol pledged to reform the pension system, presenting sustainability, fairness and income security as three key principles.
Under the proposal, wage earners will be required to pay 13 percent of their income, compared with the current 9 percent.
In an unprecedented measure, the pace of the increase in the rate will be differentiated. Starting next year, the contribution rate for people in their 50s will be increased by 1 percentage point per year.
That for people in their 40s will be increased by 0.5 percentage point per year. For people in their 30s and 20s, the contribution rate will be increased by 0.33 percentage point and 0.25 percentage point per year, respectively.
The reform proposal, however, is subject to approval by the National Assembly, where the main opposition party holds a majority. Nevertheless, it marked the first major government plan in 21 years to reform the pension system.
If the reform becomes a law, it would mark the first increase of the pension contribution rate in 27 years.
Elderly people work to remove weeds in a dense apartment neighbourhood in Sejong City. (Image courtesy of Yonhap)
“The reform focuses on bolstering the sustainability of the pension so that all generations can share the benefits of the system,” Cho told reporters.
“We have reviewed detailed measures to further secure the retirement lives of the people by considering equity among generations,” he said.
In another major change, the nominal income replacement rate, which indicates the proportion of pre-retirement monthly wages covered by the pension, will be held at 42 percent without an additional cut.
The rate, initially set at 70 percent when the pension system was introduced in 1988, reached 50 percent in 2008, with the rate decreasing 0.5 percentage point annually, with a target of reaching 40 percent by 2028.
The government, however, said it has decided to maintain the 42 percent rate set for 2024, in response to public sentiment that income security is as important as the financial stability of the fund.
Established in 1988, South Korea’s pension system was originally designed to guarantee a certain amount of income after retirement. With the nation rapidly aging and its birth rate plunging, worries have grown that the younger generation would not receive pension benefits despite their contributions.
(Yonhap)
