Fiscal and Policy Implications of the 2025 National Pension Act Amendment

Published on June 9, 2025
Published by Social Cost Estimates Division

   The report analyzes the impact of the amended National Pension Act, passed by the National Assembly in March 2025, on the financial status of the National Pension Fund as well as on future contribution payments and pension benefits. The key provisions of the amendment include increasing the contribution rate to 13% and the nominal income replacement rate to 43%, strengthening the credit system, and legally mandating the government's guarantee of benefit payments.
   The amendment is expected to improve the long-term fiscal outlook of the National Pension Fund. Specifically,the projected onset of the fund's fiscal deficit is delayed by seven years (from 2041 to to 2048) while the estimated depletion of the fund is extended by eight years (from 2057 to 2065). In the scenario where the government’s plan to improve fund investment performance results in a one-percentage-point increase in the average rate of return over the projection period, the onset of the fiscal deficit is expected to be postponed to 2055, with fund depletion projected to occur in 2073.
   In addition to enhancing fiscal sustainability, the reform is expected to improve the structural imbalance between contributions and benefits. This higher nominal income replacement rate strengthens the income protection function of the pension system. Under the amended Act, the benefit-to-contribution ratio is projected to exceed 1.7 for average income earners with 40 years of contributions, and 1.6 for those with 20 years of contributions – indicating a substantial intergenerational improvement in return on contributions.
   Moreover, the report estimates the pension liability and the unfunded liability, resulting from the codification of the government’s benefit payment guarantee under the amended Act. By discounting projected future benefit obligations to their present value as of the end of 2024 using the estimated fund return rate, the total present value of future pension benefits – including those for future participants – is estimated at KRW 6,358 trillion. The present value of the additional resources required to meet these obligations – namely the unfunded liability – is projected at KRW 1,820 trillion, representing a KRW 669 trillion reduction compared to the baseline under the current system.
   This amendment, the first reform in 18 years, represents a pivotal step forward in enhancing the fiscal sustainability of the National Pension and reinforcing its role as a dependable source of income in retirement. Building on this reform, the National Assembly plans to pursue further deliberations on the fund's fiscal stability and reorganization of the income security system through the Special Committee on Pension Reform, established in March 2025.