South Korea’s parliament on Thursday passed a bill to reform the country’s $830 billion pension fund and delay the depletion of the state fund that has been on track to run out by the mid-2050s due to a rapidly ageing population.

The bill’s passage marks the first time parliament has agreed to a major shake-up in the state pension fund in 18 years and could delay depletion by 15 years.
Under the legislative amendment, contributions and payouts will rise, the former more steeply, after the ruling People Power Party and the main opposition Democratic Party agreed on the rate of increases.

The contribution rate for the mandatory pension scheme will rise to 13% of income, up 0.5 percentage points each year for the next eight years from the current 9%, as proposed by the government in September.

The nominal income replacement rate, the ratio of pension payouts to average income, will be increased to 43% in 2026, from this year’s 41.5%. The rate had previously been set to be lowered by 0.5 percentage points each year to 40% by 2028.

That is higher than the government’s proposal of keeping it at last year’s 42%. The left-leaning Democratic Party, which holds a majority in parliament, had argued for a hike to 45%.
Pension credits for childbirth and military service will also be expanded in line with the government proposal.

“It is very meaningful that we have brought a reform to the pension system for the first time in 18 years,” said Choi Sang-mok, the country’s acting president.

Still, more reforms and a mechanism automatically adjusting pension payments are also necessary for the sustainability of the pension scheme, Choi said.

South Korea’s six major business groups said in a joint statement measures were also needed to ease insurance costs for companies, as companies share half of the contribution burden for employees.

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