The South Korean government will restructure a record 107.6 trillion won ($77.4 billion) of spending in next year's budget. But critics say it failed at the core of the effort, leaving untouched the basic pension, whose costs rise automatically as the population ages, by keeping the current target of covering the bottom 70% of older adults.
Under the 2027 budget proposal released on the 1st by the Ministry of Planning and Budget, the government trimmed 38.6 trillion won from discretionary spending and scrapped about 2,100 underperforming or inefficient programs. It saved 6.2 trillion won in research and development and 3.8 trillion won by consolidating farming and fisheries policy funds, among other steps. The discretionary savings alone exceed the previous record of 26.9 trillion won, set this year, by 11.7 trillion won.
The deep cuts to mandatory spending such as welfare outlays also stand out, with restructuring reaching 69 trillion won. The mandatory figure, however, is not an actual reduction but the gap between projected spending before and after the program changes. By reworking the formula that links transfers to internal tax revenue, the government will curb increases in local government grants of 30.5 trillion won and education grants of 32.5 trillion won, setting aside the savings in a future response fund. Changes to how unemployment benefits are paid saved another 1.4 trillion won.
Missing from the proposal, though, is a revision of basic pension eligibility, which had been the central task of mandatory spending reform. The Ministry of Health and Welfare had considered exempting current recipients from new rules while gradually lowering the eligibility threshold for new entrants from 90% of the 2027 median income to 80% by 2030. Applied to the current income distribution, the 2030 threshold would have narrowed coverage to about the bottom 63% of older adults, or roughly six in 10 instead of seven. The government instead decided to keep the 70% target.
In its place, the government will pay differentiated benefits: 380,000 won a month to the 3.48 million people in the bottom 30% of older adults by income, 359,000 won to those between the 30th and 45th percentiles, and a frozen 350,000 won to those between the 45th and 70th. For those up to the 45th percentile, the reduction applied to married couples will be halved to 10% from 20%, and 110,000 low-income recipients of occupational pensions and their spouses will newly qualify for support. Couples in the bottom 30%, who benefit from both the higher payment and the easier couple reduction, will receive 684,000 won a month next year, up as much as 124,000 won from 560,000 won this year.
As a result, the basic pension budget will rise 11%, or 2.6 trillion won, to 25.7 trillion won next year from 23.1 trillion won this year. That is 600 billion won more than it would have cost under the existing system.
The welfare ministry says it recognizes the need to shift the coverage target to an income-based standard but that further public discussion is needed, tied to the broader retirement income system.
The upshot is higher benefits for low-income recipients and frozen payments at the upper end, but a retreat from the original plan to adjust the scope of coverage and ease the long-term fiscal burden. With next year coming one year before the 2028 general election, some see political calculation aimed at older voters at work.
