The Dawn of the 9.5% National Pension Era: Will the Automatic Adjustment Mechanism Serve as a Safety Net for Old Age?
- #연금특위
According to the National Pension Service (NPS), Professor Lee Hang-seok of Sungkyunkwan University, in a report titled "Measures for Securing the Structural Sustainability of the National Pension's Long-Term Finances" recently published in the winter 2025 issue of Pension Forum,
emphasized that the introduction of an "automatic adjustment mechanism (AAM)"—which automatically adjusts benefit levels or the eligibility age in response to demographic changes and economic conditions—is the key to securing the structural sustainability of the National Pension.
The automatic adjustment mechanism is a device that self-corrects the pension system according to objective indicators such as life expectancy and economic growth rates, without requiring political grand bargains or legislative amendments.
The report analyzed three types of such mechanisms, among which "macroeconomic indexation (Type 2)"—the approach adopted by Japan—was identified as the most suitable model for Korea's circumstances.
This method reflects demographic changes in real time in the calculation of benefit amounts, including declines in the number of active workers (contributors) and increases in life expectancy.
Based on simulations conducted by Professor Lee using an Overlapping Generations (OLG) model, the macroeconomic indexation approach demonstrated the most robust resilience under two crisis scenarios: longevity risk and labor force shortage.
In particular, the simulations confirmed that this approach can achieve fiscal stability while actually reducing the tax burden, even amid the formidable challenge of a shrinking labor force.
