"Doing This Will Ruin the Economy" — Changing Chun Doo-hwan's Mind... The Ups and Downs of the National Pension [Anniversary Series: Trigger 60 ㊼]

[JoongAng Ilbo · Anniversary Series: Trigger 60 · November 6, 2025]

Yun Suk-myung, Research Fellow Emeritus at the Korea Institute for Health and Social Affairs (KIHASA)

Republic of Korea 'Trigger 60' ㊼ Introduction of the National Pension scheme

Reserves of 1,400 trillion won (approximately 50% of gross domestic product (GDP)) and 21.98 million contributors (as of the end of October). This is the current state of the National Pension scheme, a core pillar for guaranteeing the old-age livelihood of the people. Introduced in 1988, the National Pension scheme is the third largest among pension funds and sovereign wealth funds worldwide, following Japan's public pensions (2,200 trillion won) and Norway's sovereign wealth fund (2,000 trillion won). Until now, the National Pension scheme has served as an income safety net for the growing older population. In particular, it is becoming the primary source of old-age income for approximately 7 million people of the first baby-boom generation (born between 1955 and 1963). The National Pension scheme also exerts a significant influence on the domestic capital market. With domestic stock investments totaling 192 trillion won (as of the end of August), it is a "big player," with an average shareholding rate of 6% in domestic listed companies. The National Pension scheme exercises great influence by intervening in decision-making during corporate management processes.

From the discussions on its introduction to its implementation, the National Pension scheme was a series of ups and downs.

"It is assessed that the introduction of a pension scheme will not only increase savings but also contribute significantly to securing investment resources for state finances."

On November 30, 1972, at the presidential office, Kim Man-je, President of the Korea Development Institute (KDI), reported on the necessity of introducing a pension scheme in the presence of President Park Chung-hee and ministers from economic departments. Immediately after the October Yushin, Park Chung-hee strongly instructed that "the evaluation of Yushin depends on achieving 10 billion dollars in exports" and to "concentrate all policy focus on this." In particular, he ordered that "extraordinary measures be devised to secure resources for heavy and chemical industries."

It was a time when supporting the growing older population through traditional family support systems was becoming increasingly difficult due to rapid changes in population structure caused by population concentration in cities and the shift toward nuclear families. The introduction of a social security pension scheme was necessary. However, within the domestic political sphere at the time, there was a widespread negative perception that welfare systems implemented in Western countries, such as Europe, were "consumptive policies" that failed to increase economic productivity. They argued that introduction was premature given the Korean situation where economic development was urgent. Kim, for his part, persuaded them with the logic that "introducing a pension scheme makes it easier to secure investment resources to enhance export capabilities." After a long discussion, Park Chung-hee ordered the preparation of specific plans for the introduction of the pension scheme.

Decided on the flight home right after the 1986 European tour. In December 1973, one year after Park's decision, the "National Welfare Pension Act" passed the plenary session of the National Assembly. However, as the first oil shock broke out due to the Middle East War and emergency measures were enacted in January 1974, the implementation of the pension scheme was postponed indefinitely. According to "Annals: The People's Pension," published by the National Pension Service in 2015, discussions resumed during the Chun Doo-hwan administration.

At the first Cabinet meeting of the new year in January 1981, Kim Man-je, President of KDI, returned to the presidential office with a report titled "Basic Concept for the Construction of a Welfare State," which included the introduction of the National Pension. Chun Doo-hwan, upon receiving the report, did not offer any particular commentary. Kim, who had privately hoped for a reaction from the president, could only be disappointed. Even thereafter, KDI produced and submitted one or two more reports regarding the National Pension to the presidential office, but there were no results. In January 1984, Ahn Seung-chul, the newly appointed President of KDI, visited the presidential office for an introductory meeting and reported on the National Pension again. Chun Doo-hwan reportedly expressed his discomfort, saying, "Doing this in Korea will ruin the economy." Two years later, on April 21, 1986, after completing a tour of four European countries, Chun Doo-hwan had just embarked on his return journey aboard Air Force One.

As the plane passed over the Alps, Deputy Prime Minister and Economic Planning Board Minister Kim Man-je and SaKong Il, the senior secretary for economic affairs at the presidential office, who were accompanying him, cautiously brought up the subject.

"Your Excellency, this may be something you do not wish to hear, but is it not because retirees in countries we visited, such as the United Kingdom and Germany, live stable lives without worrying about poverty in their old age that those nations are wealthy? Since our economy has also grown significantly, I believe it may be time to ensure that our people can live without worrying about old-age poverty through a national pension scheme."

Chun Doo-hwan, who had been listening in silence, spoke.

"You people are truly persistent. Even though I said it could not be done. Very well. Please review its introduction."

Once the president's approval was granted, the process proceeded swiftly. Eight months later, on December 31, the "National Pension Act" passed the National Assembly. Implementation began in January 1988. Initially, employees of workplaces with 10 or more workers were eligible for coverage. The era of a universal pension began in 1999. Although 37 years have passed since the introduction of the National Pension, many problems remain to be solved. These are long-standing challenges, such as the issue of fund depletion and intergenerational equity, which have been subjects of controversy for over a decade. This stemmed from the fact that the framework designed during the Park Chung-hee administration—an era of high growth—was implemented and maintained as is without being corrected even after more than 10 years had passed.

At first, it was a system of "paying less and receiving more." In 1988, the income replacement rate (the amount received) was 70%, while the contribution rate (the amount paid) was only 3%. This was set to increase by 3 percentage points every five years until it reached 9% in 1998. The system was designed so that beneficiaries would receive far more than the total of their contributions and interest. From the perspective of the insured, increasing the contribution rate was bound to be an unpopular policy. For a long time, the government and the political sphere were passive about raising the contribution rate.

From the mid-to-late 1990s, as issues of low growth, low fertility, and increasing life expectancy emerged, concerns were raised about the sustainability of the pension scheme. A major overhaul of the National Pension was inevitable. Pension reforms were carried out in 1998 and 2007. The Kim Dae-jung administration lowered the income replacement rate from 70% to 60% and delayed the eligibility age from 60 to 65. Even thereafter, issues of fiscal instability persisted. The Roh Moo-hyun administration decided on a gradual reduction that maintained the contribution rate as is (9%) but lowered the income replacement rate by 0.5 percentage points every year to reach 40% by 2028. Despite two reforms, controversies continued as concerns over fund depletion overlapped with dissatisfaction regarding the income replacement rate. The government spent 17 years without raising the contribution rate—which the insured dislike—by even one percentage point.

Then, on March 20 of this year, a new National Pension overhaul plan (to be implemented starting January 1, 2026) passed the National Assembly. The core of the plan is to increase the contribution rate from the current 9% to 13% over eight years until 2033, and to raise the income replacement rate—which was scheduled to drop to 40% by 2028—to 43% starting in 2026. It was an attempt at compromise. In short, it is a case of "paying a little more and receiving a little more."

Chancellor Schröder pushed pension reform through. Criticism persists that although the contribution rate was raised, fundamental problems such as fund depletion have not been solved. In particular, some point out that it is not reform but deterioration in that it increased the burden on young people and future generations. According to estimates by the National Assembly Budget Office, the unfunded pension liability of the National Pension (the amount insufficient to pay pensions even with current reserves and contributions to be paid until 2095) reaches 1,820 trillion won. The reserves are significantly insufficient compared to the amount to be paid.

For a fundamental solution, it is necessary to consider the introduction of an automatic adjustment mechanism. This is a system in which pension benefit amounts are automatically adjusted according to changes in the fertility rate, life expectancy, and economic growth rate. Already, 70% of the member countries of the Organisation for Economic Co-operation and Development (OECD) have introduced this system. It was one of the heated issues during the recent pension reform discussions, but the introduction failed. Jung Eun-kyeong, Minister of Health and Welfare, stated during last month's National Assembly audit that "consideration is necessary" regarding the introduction of an automatic adjustment mechanism.

One should take note of the case of Germany, which succeeded in pension reform by introducing an automatic adjustment mechanism in 2004, following Sweden. At the time, the Social Democratic cabinet led by Chancellor Schröder reformed the pension scheme to reflect demographic and labor market conditions for fiscal stabilization of the pension. Opposition was severe, centered around workers. Bert Rürup, who played the role of midwife to the pension reform as the chairman of the Council of Economic Experts, persuaded the public as follows.

"The goal of the reform must be set toward minimizing the possibility that a specific generation suffers significantly more loss compared to other generations. Only then will it be possible to build a consensus on intergenerational equity."

This means that the sustainable reform of the National Pension is a shortcut toward national unity by reducing intergenerational conflict.

You can view the entire Anniversary Series: Trigger 60 through the link below. https://www.joongang.co.kr/issue/11765

※ The following is the installment on 'Implementation of Universal Health Insurance'.

Source: JoongAng Ilbo (original article)