Gov’t proposes to raise pension contribution rate to 13 pct

Sep 05, 2024, 10:48 am

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The National Pension Service’s Seoul Northern Regional Headquarters Consultation Center in Seoul on Sept. 4, 2024./ Source: Yonhap

AsiaToday reporter Lee Joon-young

The government will review increasing the mandatory subscription age for the pension fund to 64 from the current 59, with the intention of reducing the time difference between pension eligibility age and retirement age. It will raise the monthly basic pension provided to low-income seniors, currently set at 300,000 won to 400,000 won. It will also push to raise the pension contribution rate to 13 percent from 9 percent and differentiating the pace of raising the contribution rate by age group.

The Health and Welfare Ministry held the third National Pension Review Committee on Wednesday to deliberate and confirm the pension reform plan. First, the government is considering raising the mandatory subscription age from 59 to 64. It believes it should extend the premium payment period by 5 years to reduce the time it takes to receive a pension after retirement. The age at which pension payment begins was raised to 61 from 2013 through the fist pension reform in 1998, and is being delayed one year every five years to receive pension at the age of 65 in 2033.

In order to guarantee retirement income, the government will expand the basic pension amount, and improve the problem of reducing living benefits when receiving the basic pension. It will first raise the current basic pension amount, which is up to 334,810 won, to 400,000 won for low-income seniors in 2026, and expand it to all seniors receiving the basic pension in 2027.

The pension premium rate will be gradually increased to 13 percent in order to enhance the sustainability of the national pension system with adjustments varying by age group. The rate for a subscriber in his 50s would rise by 1 percentage point annually starting in 2025. In contrast, those in their 20s would see an increase of 0.25 percentage point annually, while subscribers in their 30s would experience a 0.33 percentage point increase, and those in their 40s would see a 0.5 percentage point increase. The government plans to increase the pension’s income replacement rate from 40 percent to 42 percent.

The government will also review the adoption of an automatic adjustment mechanism, a system designed to modify benefit levels based on factors such as demographic and economic conditions.

The government also plans to codify the government’s commitment to providing pension payments into law. Currently, the law only states that the government is responsible for implementing necessary policies to ensure the fund’s stability and sustainability.

However, analysts say that additional changes such as the extension of the retirement age are needed in relation to the five-year extension of the mandatory subscription age for the pension fund.

#pension reform