When the National Pension 'Automatic Adjustment Mechanism' is Introduced... 70 Million Won Reduction in Benefits for People in Their 20s to 50s

Concerns have been raised that if the government implements the automatic adjustment mechanism for the National Pension, the lifetime pension benefits for people in their 20s to 50s could decrease by more than 70 million KRW compared to the current system.

The automatic adjustment mechanism refers to a system that automatically adjusts the insurance premium rates (the money paid in), pension amounts received, and eligibility age based on demographic structure and economic conditions. Recently, the government announced a pension reform plan and indicated its intention to introduce this mechanism to stabilize the pension system.

According to data received by Rep. Kim Seon-min of the Innovation Party from the Ministry of Health and Welfare on the 6th, calculations based on the government's automatic adjustment mechanism scenario show that pension benefits for all age groups currently in their 20s to 50s would be reduced by more than 70 million KRW.

Analyzing by age group, the expected pension benefits over 25 years for those born in 1996 (20s), 1986 (30s), and 1976 (40s) were calculated. The reduction amounts after applying the automatic adjustment mechanism were estimated at 72.5 million KRW for the 1996 cohort, and 72.93 million KRW for both the 1986 and 1976 cohorts.

According to the lawmaker’s office, the Ministry of Health and Welfare’s “Annual Application Indicators upon Introduction of the Automatic Adjustment Mechanism,” prepared based on the 5th National Pension Financial Projection, sets the annual consumer price inflation target at a stable 2.00% and assumes an average increase rate of 0.36% in life expectancy at age 65 according to Statistics Korea’s future population projections.

When incorporating a three-year average subscriber decline rate to calculate the final pension increase rate, the increase rate is projected to repeatedly fall into negative figures starting from 2040, only rising above the lower limit of 0.34% by 2081.

The current National Pension system adjusts pension amounts based on the previous year’s consumer price inflation rate, ensuring that pension amounts rise in line with inflation. However, if the government’s proposed mechanism is applied domestically, the increase rate could drop to negative values, resulting in minimal pension increases.

Rep. Kim Seon-min criticized, “The pension reform plan including the automatic adjustment mechanism effectively turns the National Pension?which was promoted as guaranteeing real value by increasing pension amounts in line with inflation?into a private pension scheme, essentially a pension degradation.” He added, “During parliamentary discussions on pension reform, the necessity of introducing the automatic adjustment mechanism, which is effectively an ‘automatic reduction device,’ must be thoroughly scrutinized.”