Major Contents of the Amendment to the National Pension Act

Korea's National Pension Scheme faces long-term financial instability and intergenerational inequity problems due to an imbalance in the benefit-contribution structure and a rapidly aging population. As a result, the need to reform the existing actuarial valuation process, which was first carried out in 2003, has emerged once again. To secure the financial stability and expand the coverage of the pension scheme, the government had long been pursuing another amendment to the National Pension Act since 2003. The National Assembly, however, did not pass the revised bill until July 2007.

The government's second reform plan for the National Pension Scheme was composed of “parametric” reform measures that can alleviate the financial imbalance through an adjustment of benefit and contribution levels, while maintaining the structural framework of the existing scheme, much like the first reform. More specifically, the financial stabilization measures of the second amendment included a decrease in the benefit level based on average income earners with 40 years coverage from 60% to 50% by 2008, and then further progressive decreases by 0.5 percentage points per year down to 40% in 2028, while maintaining the same 9% contribution rate. In addition, in a way to rationalize and complement the National Pension Scheme, the government also included the introduction of the Military Service Credit System, which was designed to grant six months' coverage to a person who has successfully finished his/her military service, and the Childbirth Credit System, designed to grant additional coverage to women who give birth to more than two children. The Deferred Pension System was drawn up to encourage the elderly to engage in income-earning activities. The other amendments include: (i) a decrease in benefit payment rates for each age group of early old age pensioners; (ii) an increase in the scale of the benefit cuts to prevent early retirement; (iii) an improvement of the Concurrent Benefits Adjustment System¹; (iv) the prohibition of the seizure of paid pensions; (v) continuous payment of the Divided Pension, which is originally paid to a divorced spouse, even after a beneficiary remarries; and (vi) the expansion of the scope of beneficiaries for the Dependents' Pension. Table 1 [ PDF 19.7KB | 2 page ] summarizes the major contents of the amendment to the National Pension Act.

Together with these reform measures, the noncontributory Basic Old Age Pension Act was introduced to expand the pension coverage among elderly people with low incomes. Under this act, the benefit payment that comes to about 5% of the average monthly income (Value A) is provided for people aged over 65 with an income lower than the basic income determined by the Presidential Decree issued in January 2008. The benefit level, however, will be adjusted gradually from 5% of Value A to 10% by 2028, while the scope of its beneficiaries will be expanded from the current 60% of the people older than 65 (as of 1 July 2008 at its first benefit payment) to 70% by January 2009.

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