Income replacement rate raised to 43%, boosting future pension payouts

[123RF]
[123RF]

Starting in July, the upper and lower limits of the standard monthly income used to calculate national pension contributions will be adjusted upward to reflect growth in subscribers' earnings.

The change will raise premiums for some subscribers next month, but it will also increase the pension benefits they receive in retirement, strengthening long-term income security.

The Ministry of Health and Welfare confirmed Tuesday that the revised income ceiling and floor will take effect in July and remain in place through June 2027.

The adjustment reflects a 3.4 percent average change in subscribers' income over the past three years.

Under the new thresholds, the upper limit — the maximum monthly income subject to contributions — rises from 6.37 million won (about $4,120) to 6.59 million won, while the lower limit increases from 400,000 won to 410,000 won.

The national pension system caps contributions at the upper limit regardless of how high a subscriber's income is, and sets a floor so that even low earners pay premiums based on at least the minimum threshold.

High earners with monthly incomes above 6.37 million won have been paying 605,150 won a month under the 9.5 percent contribution rate that took effect in January. From next month, their contributions will be calculated against the new ceiling of 6.59 million won, raising their monthly premium to 626,050 won — an increase of 20,900 won.

For salaried workers, however, employers cover half the premium, so the out-of-pocket increase for individuals amounts to 10,450 won a month.

Subscribers earning between 6.37 million won and 6.59 million won a month — the band between the old and new ceilings — will also see their contributions rise by varying amounts depending on their income.

For example, a subscriber earning 6.5 million won a month previously had contributions capped at the old ceiling of 6.37 million won, paying 605,150 won. From next month, the full 6.5 million won will be subject to the contribution rate, bringing the monthly premium to 617,500 won.

Subscribers at the bottom of the income scale — those earning less than 410,000 won a month — will also see a modest increase as the floor rises. Their monthly premium will go from 38,000 won, based on the old floor of 400,000 won, to 38,950 won under the new floor of 410,000 won, an increase of 950 won.

The 86 percent of national pension subscribers who earn between 410,000 won and 6.37 million won a month will not be directly affected by the ceiling and floor adjustments.

Subscribers whose income has not changed will see no premium increase from this adjustment. The only additional amount they pay each month stems from the contribution rate hike — from 9 percent to 9.5 percent — introduced as part of the pension reform.

The higher premiums are expected to be offset by larger pension payouts in retirement.

The national pension's income replacement rate, which stood at 41.5 percent in 2025, rises to 43 percent starting this year, meaning subscribers will receive more in future benefits.

The Ministry of Health and Welfare said the ceiling and floor adjustments are intended to more accurately reflect changes in subscribers' income levels and improve fairness. "As contributions increase, so will future benefit payments, contributing to greater financial stability in retirement," the ministry said.


thlee@heraldcorp.com