(Nocut News Report, March 1, 2025) Pension Reform Halted — What Is It About the '1 Percentage Point of Income Replacement Rate' and the 'Automatic Adjustment Mechanism'? (Posted September 4, 2026)
(By now, our society too
must be able to tell
who the real
pension experts
actually are.)
Ruling party–opposition–government consultative council on state affairs due to take up pension reform canceled
Hopes had risen for parametric reform, but
in the end, not a single step was taken
Ruling and opposition parties differ on the income replacement rate
by 1 percentage point —
"300 trillion won in liabilities"
Introduction of an automatic adjustment mechanism?
"It must not be seen as an alternative to structural reform"
In pension reform, attention had focused on whether agreement could be reached on 'parametric reform'—adjusting the figures for the contribution rate, 'the money paid in,' and the income replacement rate, 'the money received'—but in the end it fell through. With the session of the ruling party–opposition–government consultative council on state affairs that was to take up pension reform canceled, not a single step forward was taken.
According to reporting compiled by CBS Nocut News on the 1st, the consultative council on state affairs, which had been scheduled to take up pension reform and other matters the previous day, ultimately never convened.
Ahead of the consultative council the previous day, Park Chan-dae, floor leader of the Democratic Party of Korea, said that "Acting President Choi Sang-mok has been delaying the appointment of Constitutional Court Justice Ma Eun-hyuk," adding: "As long as Acting President Choi does not fulfill his constitutional duty, it is difficult to recognize him as a partner in dialogue. We are withholding our attendance at today's consultative council."
The ruling and opposition parties had initially agreed to raise the contribution rate, raising hopes that parametric reform was within reach. It was the first time in 27 years—since the National Pension contribution rate was raised to 9% in 1998—that the two sides had agreed to an increase in the contribution rate.
But the 'income replacement rate' and the 'introduction of an automatic adjustment mechanism' ultimately held the process up. At the working-level consultation held on the 27th of last month, a day before the consultative council, the two sides again failed to narrow their differences.
What Is It About 1% of the Income Replacement Rate? — "A Difference of 300 Trillion Won in Liabilities"
The ruling and opposition parties have agreed to raise the contribution rate from the current 9% to 13%, but they remain at odds over the income replacement rate, with the People Power Party calling for a level of 42–43% and the Democratic Party for 44–45%.
In the end, the two sides are locked in a standoff over 1–2 percentage points of the income replacement rate. Those who prioritize fiscal stabilization argue that this 1 percentage point places a heavy burden on future generations.
According to an analysis by the Pension Future Forum and Professor Jeon Young-jun of Hanyang University's School of Economics and Finance, if parametric reform were carried out with a contribution rate of 13% and an income replacement rate of 44%, the unfunded pension liability would reach 6,458 trillion won in 2050.
Unfunded liability refers to the shortfall against benefits promised to the insured. That is about 300 trillion won higher than the unfunded liability under a 13% contribution rate and a 43% income replacement rate (6,159 trillion won). It is higher even than the unfunded liability under the current 9% contribution rate and 40% income replacement rate (6,332 trillion won).
Min Dong-hwan, a researcher at Pension Reform Youth Action, told a pension reform roundtable hosted by the People Power Party on the 25th of last month that "for every 1% increase in the income replacement rate, the liabilities that future generations must shoulder rise by about 310 trillion won."
"The Democratic Party's 44% proposal, which seeks only to raise the money received without any regard for future generations, is a shameless, conscienceless reform plan," he charged.
But there are also voices arguing that reform must be accelerated, noting that the longer it is delayed, the more National Pension liabilities pile up—at 88.5 billion won a day.
According to the National Assembly Budget Office, the National Pension Fund's accumulated reserves will peak in 2039, turn to deficit in 2040, and be depleted in 2057. By 2072 the cumulative deficit will reach 2,899.4 trillion won.
Seok Jae-eun, Professor in the Department of Social Welfare at Hallym University, said that "raising the contribution rate is already a 'delayed reform,' which makes it the most urgent issue,"
adding, "To that end, it is important to press ahead with reform even if it means raising the income replacement rate as high as 44%."
Introduction of an Automatic Adjustment Mechanism? "The Effect of Raising the Income Replacement Rate Disappears"
View originalYonhap News
The introduction of an automatic adjustment mechanism—which would have the contribution rate and the income replacement rate adjust automatically in line with demographic and economic conditions—is another point of contention.
The People Power Party has left open the possibility of accepting the Democratic Party's proposed 44% income replacement rate, on the premise that an automatic adjustment mechanism is introduced.
The Democratic Party, for its part, takes a positive view of the automatic adjustment mechanism proposed by the government, which would operate on the premise of 'National Assembly approval,' but says it cannot accept it in full, citing concerns that benefits would be cut.
Those who emphasize fiscal stabilization view the introduction of an automatic adjustment mechanism favorably because it can 'depoliticize' pensions. That is because benefit levels would be adjusted automatically whenever the environment changes—through low fertility, population aging and the like—without going through a complicated debate. In fact, 24 of the 38 member countries of the Organisation for Economic Co-operation and Development (OECD) have introduced an automatic adjustment mechanism.
For that reason, criticism has also been raised of introducing an automatic adjustment mechanism premised on National Assembly approval.
Yun Suk-myung, Research Fellow Emeritus at the Korea Institute for Health and Social Affairs (KIHASA), pointed out that "the whole idea of an automatic adjustment mechanism is to settle automatically what cannot be settled politically, so having the National Assembly approve it makes no sense."
Those who prioritize income security, by contrast, are strongly opposed, calling the automatic adjustment mechanism an 'automatic benefit-cutting mechanism.'
According to the government, if an automatic adjustment mechanism were introduced, total pension benefits could fall by 11.1% for those born in 2005, 13.4% for those born in 1995 (age 31), 14.6% for those born in 1985 (age 41), and 15.6% for those born in 1975 (age 51).
Analyses have also emerged suggesting that the scale of the cuts will be larger than the government projects.
According to estimates compiled by the office of Representative Jeon Jin-suk of the Democratic Party of Korea, a member of the National Assembly Health and Welfare Committee, together with the Public Pension Strengthening People’s Action (Pension Action), introducing an automatic adjustment mechanism would cut total pension receipts across every generation by about 21% from current levels.
In a statement on the 27th of last month, Pension Action pointed out that "if an automatic adjustment mechanism is introduced, the income replacement rate is estimated to be cut by a further 8 percentage points," and that "even if the income replacement rate were set at 45%, in reality it would amount to only about 37%, not 45%."
It went on to argue that "however much the income replacement rate is raised, introducing an automatic adjustment mechanism makes raising it pointless—it amounts, if anything, to lowering it."
Many OECD countries have introduced an automatic adjustment mechanism, the group notes, but their income replacement rates are themselves higher than Korea's.
Professor Seok said that "an automatic adjustment mechanism is a device for fine-tuning, and it will be effective only once pension reform has been brought to some degree of completion,"
and advised that "the introduction of an automatic adjustment mechanism must not be linked to structural reform as though it were an alternative to it."
