Pension Reform Issues in South Korea and NDC-Based Solution

Pension reform still remains one of the major government agendas in South Korea, despite a series of reforms in 1998 and 2007. This paper argues that the unsatisfactory reforms were inevitable since those reform packages were based on traditional parametric reform retaining the DB (Defined Benefit) principle. Thus, this paper argues for a paradigm shift in designing the Korean pension system, which utilizes a Swedish-style NDC (Non-Financial Defined Contribution) earning-related pension plus a supplementary basic pension as an alternative model. This paper is divided into three parts. The first analyzes and evaluates the pension reforms concerning the financial sustainability. The second part discusses the current state of basic security for the elderly and recently introduced basic pension scheme, The third part combines the two reform issues and introduces a detailed framework for an NDC-based multi-tier pension system. The 5th International Conference of East Asian Social Policy, Welfare Reform in East Asia, National Taiwan University, Taipei, Nov. 3~4, 2008.