The ruling and opposition parties reached a broad agreement on the reform of the basic parameters, a key issue in pension reform. On the 14th, the Democratic Party of Korea announced that it would accept the proposal from the People Power Party to raise the 'income replacement rate (percentage of money received) to 43%.' However, there are differences of opinion regarding the formation of a special committee for pension reform in the National Assembly and the introduction of an automatic adjustment mechanism, which are expected to become variables in future negotiations.
On the same day, the People Power Party and the Democratic Party found common ground for the reform of basic parameters, raising the insurance premium rate (the percentage of money paid) from the current 9% to 13%, and raising the income replacement rate to 43%. The reform of basic parameters aims to readjust the ratio of the insurance premium rate (money contributed) and the income replacement rate (money received) in the pension system.
Jin Seong-jun, the policy chief of the Democratic Party, stated, 'We will accept the income replacement rate of 43%.' He also proposed three conditions: ▲ defining national payment guarantees in writing ▲ expanding credit for childbirth and military service ▲ increasing support for insurance premiums for low-income individuals.
In response, the People Power Party said, 'We accept this positively and welcome it.' Kim Sang-hoon, the policy chief of the People Power Party, stated, 'We will discuss the subsidiary proposal conditions with the government.' Regarding the three items requested by the Democratic Party, he noted, 'They are included in the government's pension bill' and added, 'We will work with the government to ensure they can be reasonably decided upon.'
Until now, the ruling and opposition parties had agreed on raising the insurance premium rate to 13%, but they had shown differences regarding the rate of increase for the income replacement rate and the introduction of the automatic adjustment mechanism. The ruling party argued for adjustments to the income replacement rate to 42-43%, based on the assumption of introducing the automatic adjustment mechanism (a system that adjusts the regular increase rate of pension amounts in relation to changes in life expectancy and the number of subscribers).
In contrast, the Democratic Party maintained that the income replacement rate should be raised to 44-45%. They also argued that even if the automatic adjustment mechanism were introduced, it must first gain approval from the National Assembly. Later, the ruling party conceded that they would discuss the introduction of the automatic adjustment mechanism in the upcoming structural reform process, which led the Democratic Party to accept the 43% rate.
The Democratic Party's decision is interpreted as stemming from the recognition that discussions on the reform of basic parameters are urgent, as well as from a willingness to push forward discussions regarding the supplementary budget. During the 3rd national council meeting, the Democratic Party had stated that they could not accept the 'income replacement rate of 43%.' Chairman Kim stated, 'The Democratic Party's acceptance of the income replacement rate of 43% is likely aimed at hoping for progress in discussions related to the supplementary budget.' He added, 'We will ensure that discussions regarding the supplementary budget can take place in the practical consultative body of the ruling and opposition parties starting next week, as discussed in the national council.'
However, last-minute complications are expected regarding the formation of the National Assembly's pension special committee.
Although the ruling and opposition parties agreed on the formation of the pension special committee, they were unable to present the committee's formation plan during the previous day's plenary session due to differences in opinion. The Democratic Party insists that the phrase 'to be handled by agreement' must be removed from the pension special committee's formation plan, while the People Power Party argues that 'the special committee's plan must be handled by agreement.' Chairman Kim emphasized, 'It is unacceptable to remove the agreement handling phrase. Pension reform must be based on a consensus between the ruling and opposition parties.'
Difficulties are also expected in the discussions regarding the broader picture of future structural reforms. The structural reform aims to change the framework of the entire pension system, including not only national pension but also basic pensions and retirement pensions. In particular, the introduction of the automatic adjustment mechanism is expected to be a variable. The People Power Party views the introduction of the automatic adjustment mechanism as essential for easing the burden on the younger generation and ensuring the financial soundness of the national pension. However, the Democratic Party opposes it, stating that it is difficult to accept even with the condition of 'National Assembly approval.' The Democratic Party has made it clear that they will not agree to the automatic adjustment mechanism in exchange for conceding a 1% adjustment to the income replacement rate.
Chairman Jin stated, 'Opposition to the introduction of the automatic adjustment mechanism has been voiced by labor groups and civil society experts, and the Democratic Party has consistently maintained that the introduction of the automatic adjustment mechanism should be approached with caution,' adding, 'Under the current circumstances, even if it is approved by the National Assembly, it will be difficult to accept the automatic adjustment mechanism.'
In contrast, Chairman Kim stated, 'Originally, when discussing it at the national council, it was proposed by the Democratic Party that the automatic adjustment mechanism could be addressed later when the pension special committee is formed.' He expressed the intention to address it during discussions on structural reform, stating, 'The pension reform plan should include the automatic adjustment mechanism, the insurance premium rate, the income replacement rate, and various financial stabilizations for consideration.'