The pension benefits that an average-income Korean worker will receive after retirement fall short of the average among the Organization for Economic Cooperation and Development (OECD), a study found. The contribution rate shared by workers and employers also stands at only half the OECD average, drawing concerns that the "low-contribution, low-benefit" structure of Korea's pension system is showing its limits in securing retirement income.
According to an analysis of the OECD's "Pensions at a Glance 2025" released by the National Pension Research Institute on the 10th, the future National Pension replacement rate for an average-income worker who joined the pension system at age 22 in 2024 and completed a full career until the normal retirement age was 33.4 percent, 9.6 percentage points lower than the OECD average of 43.0 percent. The replacement rate is the ratio of pension payments to pre-retirement income, an indicator that shows the level of income security after retirement. Korea's rate rose 2.2 percentage points from the report two years earlier, but the gap with the OECD average remained wide.
This low benefit level is linked to a structure with low contribution burdens. As of 2024, the mandatory pension contribution rate for an average-income worker was 9 percent, less than half the 18.8 percent average of the OECD's 38 member countries. The mandatory pension contribution rate is the combined contribution rate of public pensions and mandatory private pensions. Italy had the highest rate at 33 percent, while Mexico had the lowest at 8.5 percent. Korea's mandatory pension contribution rate ranked among the lowest.
The low pension benefit level has led to a high dependence on labor income among elderly households. Public transfer income, including the National Pension, accounted for only 29.1 percent of Korean elderly households' income, while labor income reached half at 49.9 percent. Public transfer income refers to public pension benefits paid by the state, such as the National Pension and the Basic Pension.
The OECD average was 55.9 percent for public transfer income and 27.0 percent for labor income. Korea's capital income share was also 21.0 percent, more than double the OECD average of 10.0 percent. In the end, Korean elderly households rely more on income earned by working directly, or from savings, investments and private pensions, than on public pensions.
As public pensions failed to sufficiently fill the retirement income gap, the elderly poverty rate was the highest in the OECD. The elderly poverty rate is the proportion of the population aged 66 and over whose disposable household income, adjusted for household size, falls below half the median disposable income.
Korea's rate was 39.7 percent, about 2.7 times the OECD average of 14.8 percent. The poverty rate for those over 75 was 54.0 percent, far higher than the 29.8 percent for those aged 66 to 75, and the poverty rate for elderly women was also 45.0 percent, exceeding the 32.6 percent for men.
Korea this year moved to improve its low-contribution, low-benefit structure by raising both the contribution rate and the replacement rate at the same time. However, reforms in major OECD countries are proceeding in a direction that addresses not only contribution and benefit adjustments but also retirement age and continued employment.
The Czech Republic is gradually raising its pension eligibility age to 67, while Ireland increases benefits the longer a person delays receiving their pension. Japan has also raised the threshold for suspending its in-work old-age pension from 510,000 yen per month to 650,000 yen, widening the range in which work and pension receipt can be combined. Korea, too, is assessed as having follow-up structural reform encompassing eligibility age and elderly employment left as a task.
