Seoul: The National Assembly approved a landmark reform of the nation’s ailing pension system Thursday, marking the most significant overhaul of the public pension fund in about two decades aimed at enhancing its sustainability.

According to Yonhap News Agency, the revised bill on pensions was passed in a plenary session of the Assembly with a 194-40 vote and 43 abstentions. This followed a historic agreement between the ruling and opposition parties to increase premiums and ensure greater pension benefits. The reform will see the pension contribution rate rise from the current 9 percent to 13 percent, while setting the nominal income replacement rate at 43 percent, up from the current 40 percent.

The contribution rate is set to increase by 0.5 percentage point annually over eight years starting next year. The income replacement rate will be maintained at 43 percent beginning next year. The agreement was solidified earlier in the day when Rep. Kweon Seong-dong of the ruling People Power Party (PPP) and Park Chan-dae of the main opposition Democratic Party (DP) signed a joint agreement, facilitated by National Assembly Speaker Woo Won-shik.

The agreement came after extensive negotiations, which included Health Minister Cho Kyoo-hong, to resolve pending issues related to the reform. The Democratic Party had previously accepted a proposal by the government and the PPP to raise the nominal income replacement rate to 43 percent, addressing one of the main points of contention in the pension reform discussions.

The reform has drawn criticism from the country’s two major umbrella unions, the Korean Confederation of Trade Unions and the Federation of Korean Trade Unions. They denounced the reform as “political collusion” and accused the ruling and opposition parties of betraying public trust and undermining the pension system’s purpose.

In a joint statement, the unions expressed disappointment that the reform fell short of increasing the nominal income replacement rate to 50 percent, arguing that the deal was based on political calculations rather than ensuring income security for the elderly.

South Korea’s pension system, established in 1988, was intended to guarantee income post-retirement. However, with an aging population and declining birth rate, concerns have mounted over the system’s sustainability, with fears that younger generations may not receive benefits despite their contributions.

The National Pension Service has projected that, under the current system, the pension fund would enter a deficit by 2041 and be depleted by 2055. The newly revised system is expected to extend the fund’s viability by an additional nine years.