[2024 National Audit] "Introduce Special Measures to Prevent 'Reversal Phenomenon' in Insurance Premiums During National Pension Reform"

Minister Cho Kyu-hong: "Adjusting Insurance Premium Increases to Not Exceed the Next Generation's Level"

Regarding the issue of premium inversion occurring during the process of raising National Pension premiums differentially by generation for pension reform, Cho Kyu-hong, Minister of Health and Welfare, stated that he would consider resolving it through special exceptions.

[Image source=Yonhap News]

On the 7th, at the National Assembly Health and Welfare Committee’s audit, Minister Cho responded to Rep. Kim Sun-min of the Innovation Party’s remark that "If the government’s plan to apply different speeds of National Pension premium rate increases by generation is implemented as is, excessive additional burdens may occur at the age boundaries between generations with just a one-year difference."

The government’s previously announced pension reform plan included raising the premium rate from the current 9% to 13%, with older generations experiencing faster increases. The method is to raise premiums by 0.25 percentage points annually for those in their 20s, 0.33 percentage points for those in their 30s, 0.5 percentage points for those in their 40s, and 1 percentage point for those in their 50s.

In this case, at the boundary between the 40s and 50s generations, such as those born in 1975 and 1976, an additional premium burden arises from just a one-year age difference. For example, someone born in 1975, being at the generational boundary, would have to pay 1.44 million KRW more in premiums than someone born in 1976, who is one year younger.

Rep. Kim pointed out, "If the government imposes differential premiums by generation as proposed, a premium inversion phenomenon occurs where those just one year older pay more premiums than the younger generation. Such unfair cases occur for those born in 1975, 1985, and 1995, raising doubts about whether this is truly fair differential charging between generations."

Minister Cho agreed with this criticism and said he would consider applying special exceptions. He stated, "Our calculations show that the premium inversion phenomenon occurs over four years," and added, "We can apply special exceptions so that the premium increase level does not exceed that of the younger generation."

Regarding Rep. Kim’s point that introducing the government-proposed automatic adjustment mechanism would reduce lifetime pension benefits for those in their 20s to 50s by more than 70 million KRW, Minister Cho explained, "The representative’s calculation is correct, but the timing of the automatic adjustment activation can vary depending on the system design, such as when it is triggered, increases in life expectancy, and decreases in participation rates." The automatic adjustment mechanism is a device that automatically adjusts premium rates, pension benefits, and eligibility age according to demographic and economic conditions.

Minister Cho said, "The automatic adjustment mechanism and differential premium rate increases by generation were proposed by the government considering Korea’s rapidly changing low birthrate and aging trends," and added, "I believe that through sufficient discussion and consensus in the National Assembly, a reform plan can be created."