## Parametric Pension Reform Options in Korea

_IMF Working Papers, October 11, 2024_

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## Bibliographic details
- Authors: Daniel Baksa, Boele Bonthuis, Si Guo, Zsuzsa Munkacsi
- Published: October 11, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400290817.001

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### Summary and main findings
- Population aging in Korea will pose substantial challenges to the financial sustainability of its public pension system.
- Under current policies and plausible assumptions, public pension spending can increase by as much as 4 percent of GDP during 2020-70, while contribution revenue will largely stay constant.
- The expected rise in public pension spending mainly reflects:
  - the increase in the old-age dependency ratio (and therefore the number of pension recipients),
  - the deceleration in GDP growth in response to demographic changes, and
  - to a lesser extent, the maturing of the National Pension Scheme.
- Three pension policies are considered to stabilize the public debt-to-GDP ratio: a retirement age increase, higher social security contributions, and a lower pension replacement rate, and a combination of all three.
- The adjustments need to be large to stabilize the debt-to-GDP ratio if each policy lever is used in isolation.
- A combination of smaller adjustments of multiple parameters yields better results.

### Drivers of projected pension spending increases
- Increase in the old-age dependency ratio leading to a larger number of pension recipients.
- Deceleration in GDP growth in response to demographic changes.
- Maturing of the National Pension Scheme (lesser contribution to spending rise).

### Policy options analyzed
- Increase in the retirement age.
- Higher social security contributions.
- Lower pension replacement rate.
- Combination of the above three measures.

### Key takeaways on policy effectiveness
- Large adjustments are required if policy levers are used in isolation to stabilize the debt-to-GDP ratio.
- A mix of smaller adjustments across multiple parameters performs better in stabilizing public debt-to-GDP outcomes.

### Publication and metadata
- By Daniel Baksa, Boele Bonthuis, Si Guo, Zsuzsa Munkacsi
- October 11, 2024
- IMF Working Papers 2024, 223 (Working Paper No. 2024/223)
- Pages: 26
- DOI: https://doi.org/10.5089/9798400290817.001
- ISBN: 9798400290817
- ISSN: 1018-5941

*Source: "Parametric Pension Reform Options in Korea", IMF Working Papers 2024/223.*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/10/11/parametric-pension-reform-options-in-korea-556249_