(2015) National Pension at 50% Income Replacement Rate Would Double Contributions — Burden Shifted onto the Next Generation

However, given that raising the income replacement rate entails enormous costs, the bipartisan agreement is likely to draw criticism rather than applause. There are two ways to raise the old-age pension income replacement rate by 10 percentage points: drawing down the accumulated fund without raising the contribution rate. The fund stood at 470 trillion won as of the end of last year and is projected to peak at 2,561 trillion won (in current monetary value) in 2043 before being depleted in 2060—seventeen years later. Under this trajectory, raising the income replacement rate to 50% next year would cause the fund to peak at 2,041 trillion won in 2041 and then be depleted in 2056. That moves the depletion date four years forward. The situation beyond that point is even more problematic. Contributions would then have to cover the full cost of each year's pension payments. That rate is 25.3%—3.9 percentage points higher than the 21.4% required to maintain the current income replacement rate of 40%. This additional burden is comparable to the pension contribution currently paid by employed workers (4.5%, on an employee-share basis). 

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