🚨 Faster Aging Than Japan
Today Korean Economic News for Beginners | 2025.10.12
0️⃣ 'Half-Baked' Pension Reform Concerns, Future Generations Face Heavy Burden
📌 Premium Increased But Automatic Adjustment Missing... Fear of Following Japan's Path
💬 Korea entered super-aged society in 2025 with over 20% of population aged 65+, faster than Japan. The government passed reforms to gradually raise national pension premiums from 9% to 13% by 2033, but critics call it 'half-baked reform' as the key automatic adjustment mechanism is missing and government funding plans remain unclear. Health insurance deficits exceed 5 trillion won annually, and civil servant pension deficits reach 4 trillion won each year, increasing fiscal pressure. Japan introduced the 'macroeconomic slide' system in 2004 pension reforms to cap premiums and automatically adjust benefits, but the effect was limited because aging had already progressed significantly. Experts warn that without fundamental structural reforms now, Korea could face a more serious fiscal crisis than Japan.
1️⃣ Easy Explanation
Korea has become the fastest-aging country in the world. It's aging even faster than Japan, but the preparation is less complete than Japan's, raising concerns about big problems ahead.
Let me first explain what 'super-aged society' means. When people aged 65 and over make up more than 20% of the total population, we call it a super-aged society. Korea passed this threshold in 2025, and what's surprising is the speed. It took Japan 36 years to go from aging society (7% elderly) through aged society (14%) to super-aged society (20%), but Korea took only 26 years.
Why is this a problem? When the elderly population grows, spending on pensions and healthcare increases rapidly, while the number of working people paying taxes decreases. Simply put, there are more places to spend money but fewer people earning money.
To solve this problem, the government passed pension reforms this year. They decided to raise pension premiums from the current 9% of salary to 13% by 2033. For example, if your monthly salary is 3 million won, you currently pay 270,000 won, but you'll need to pay 390,000 won in the future.
However, experts criticize this reform as 'half-baked.' The biggest problem is that only premiums were raised, but the 'automatic adjustment mechanism' to adjust pension amounts is missing. Japan introduced this mechanism during its 2004 pension reform. It's called the 'macroeconomic slide' system, which automatically reduces pension amounts slightly when birth rates fall and life expectancy increases.
Why is such a mechanism necessary? If the number of pension recipients keeps growing but pension amounts stay the same, the pension fund will eventually run out. Then younger generations who should receive pensions later might get nothing. The automatic adjustment mechanism prevents this situation by automatically adjusting pension amounts according to economic conditions.
Instead of this mechanism, the Korean government said "we'll supplement with tax money if needed." However, there's no specific plan about how much, from when, or in what way they'll supplement. Critics say this ultimately passes the burden to future generations.
The bigger problem is it's not just about national pensions. Health insurance is also running annual deficits of over 5 trillion won. This is because medical expenses are soaring as the elderly population increases. The same goes for civil servant pensions. They generate deficits of 4 trillion won every year, which must all be covered by taxes.
Looking at Japan's case makes the problem clearer. When aging became serious from the 1990s, Japan undertook major pension reforms in 2004. They gradually raised premiums and introduced an automatic adjustment mechanism. But it was already too late. The elderly population was already too large before the reforms, so the effect was limited.
As a result, Japan's national debt exceeded 250% of GDP (Gross Domestic Product). This is the highest level in the world. Young people are anxious about whether they can receive proper pensions when they become elderly, despite paying high taxes and premiums.
Korea's aging speed is faster than Japan's, but preparation is even later. Experts warn that without fundamental reforms now, Korea could face a more serious crisis than Japan.
Ultimately, just raising premiums is not enough - pension amount adjustments and clear government fiscal support plans must be prepared together to create a sustainable pension system.
2️⃣ Economic Terms
📕 Super-Aged Society
Super-aged society means a society where people aged 65 and over exceed 20% of the total population.
- It progresses through aging society (7%), aged society (14%), to super-aged society (20%).
- Korea entered super-aged society in 2025, the fastest speed in the world.
- In super-aged society, welfare spending surges and economic vitality declines simultaneously.
📕 Automatic Adjustment Mechanism (Macroeconomic Slide)
An automatic adjustment mechanism is a system that automatically adjusts pension benefits according to changes in population structure or economic conditions.
- Japan's 'macroeconomic slide' method introduced in 2004 is representative.
- When birth rates fall or average lifespan extends, it automatically lowers the pension amount increase rate.
- This secures pension fiscal sustainability and maintains intergenerational equity.
📕 Potential Growth Rate
Potential growth rate is the maximum growth rate a country's economy can achieve without inflationary pressure.
- It's determined by three factors: labor, capital, and productivity.
- When population decreases and ages, labor force declines and potential growth rate falls.
- Korea's potential growth rate dropped from 5% in the 2000s to the early 2% range currently.
📕 Intergenerational Equity
Intergenerational equity is the principle that current and future generations should share burdens fairly.
- If the current generation enjoys too many benefits, excessive burdens are passed to future generations.
- In pension systems, the balance between premiums paid and benefits received should be fair for each generation.
- The automatic adjustment mechanism is a key tool for maintaining this equity.
3️⃣ Principles and Economic Outlook
✅ Structural Impact of Aging on the Economy
Let's analyze the impact of population aging on the economy from multiple angles.
First, sharp deterioration of fiscal balance is inevitable. When the elderly population increases, welfare spending on pensions, health insurance, and long-term care insurance surges. Currently, Korea's welfare spending is about 12% of GDP, but it's expected to exceed 25% by 2050. Meanwhile, the working-age population (15-64) paying taxes keeps shrinking. It's projected to plummet from 37 million in 2025 to 25 million by 2050. Ultimately, fewer people must pay more taxes.
Second, economic growth potential continuously weakens. When working people decrease, the entire economy's production capacity declines. Korea's potential growth rate was in the 5% range in the early 2000s, but has now fallen to the early 2% range and is expected to drop to the 1% range in the 2030s. When growth rates fall, tax revenues decrease, jobs disappear, and the entire economy loses vitality. Additionally, the elderly have low consumption tendencies, shrinking the domestic market.
Third, structural changes occur in asset prices and financial markets. As more people approach retirement, there's a strong tendency to sell risky assets like stocks and real estate and move to safe assets. Japan's long-term asset price decline since the 1990s is closely related to such demographic changes. Korea may see similar patterns after the 2030s.
Aging is not just a social problem but a massive change that transforms the entire economic structure.
✅ Limitations of Pension Reform and Supplementary Tasks
Let's examine the problems with this pension reform plan and necessary additional measures.
First, sustainability remains doubtful without an automatic adjustment mechanism. Even raising premiums to 13%, current trends suggest the fund will be exhausted in the 2060s. Japan keeps postponing fund depletion through automatic adjustment mechanisms, but Korea lacks such mechanisms, creating great uncertainty. Eventually, painful choices of raising premiums or cutting benefits may be needed again. Experts argue that a gradual automatic adjustment method to lower the income replacement rate (pension amount relative to pre-retirement income) should be introduced now.
Second, government fiscal input plans are not specific. The government said they would support with fiscal funds if needed, but it's unclear how much, from when, or in what way. This increases uncertainty about fiscal soundness and passes vague burdens to future generations. Like Germany and Sweden, government support ratios and conditions need to be clearly defined by law. Additionally, stable funding measures through tax reform must be prepared together.
Third, health insurance and civil servant pension reforms must happen simultaneously. Reforming only national pensions cannot solve aging problems. Health insurance generates annual deficits over 5 trillion won due to surging elderly medical expenses, and civil servant pensions require 4 trillion won in tax injections annually. When all these deficits accumulate, they ultimately pressure national finances. Health insurance needs reforms to raise copayment rates and organize non-covered items, and civil servant pensions need adjustments considering equity with the private sector.
National pension reform is just the first step - comprehensive welfare fiscal reform is urgent.
✅ Lessons from Comparison with Japan
Let's summarize what Korea should learn from Japan's aging response experience.
First, Japan's biggest mistake was responding too late. Japan only began full-scale reforms when aging had already progressed considerably in the 1990s. During 2004 pension reforms, the population aged 65+ already exceeded 19%. Even with reforms, effects were inevitably limited. Korea just passed 20%, so to avoid Japan's path, stronger reforms must be pursued starting now. The next 10 years are golden time.
Second, Japan's automatic adjustment mechanism was effective but not perfect. The macroeconomic slide system could control pension spending to some extent, but there were many periods when it didn't work properly due to political pressure. Especially, exceptions were made so this mechanism wouldn't activate during deflation, which halved reform effects. If Korea introduces automatic adjustment mechanisms, exceptions must be minimized and an independent operating system that prevents political interference must be created.
Third, Japan attempted partial solutions through immigration policy and expanding elderly labor participation. Japan traditionally avoided immigration, but recently increased foreign worker inflow. They also promoted re-employment for those aged 65+. As a result, employment rates for ages 65-69 exceeded 50%. Korea must also increase elderly economic participation through retirement age extension, wage peak system improvements, and elderly-friendly job creation. Simultaneously, birth rate improvement and selective immigration policies should be reviewed long-term.
Japan's experience teaches the lesson of responding 'not too late, completely, and from multiple angles.'
✅ Future Outlook and Necessary Policy Directions
Let's comprehensively present the situations Korea will face and necessary policy directions.
First, the mid-2030s will be the maximum crisis point. As baby boomers (born 1955-1963) enter their 70s, pension recipients and medical expenses will explosively increase. Simultaneously, the working-age population will plummet due to low birth rates. To prepare for this period, fiscal capacity must be secured starting now and welfare spending priorities must be readjusted. Selective welfare should be strengthened and universal welfare reconsidered.
Second, achieving social consensus between generations is most important. Pension reform ultimately involves conflicting interests between generations. Current generations don't want to reduce benefits, and future generations don't want to bear burdens. To solve this, transparent information disclosure and public discussion processes are needed. Long-term pension fiscal outlooks must be honestly disclosed, and each generation must clearly see how much they pay and receive. Only then can consensus on fair burden sharing be achieved.
Third, economic structural reform and productivity improvement must proceed together. Simply reducing welfare spending has limits. Economic growth is needed to increase tax revenues and create fiscal capacity. Potential growth rates must be raised through regulatory reform, labor market flexibility, and technology innovation support. Particularly, strategies to supplement labor force decline using new technologies like AI and robots are needed. Increasing economic participation rates for women and the elderly is also important.
Overcoming the aging crisis is possible only when three axes move together: fiscal reform, social consensus, and economic structural innovation.
4️⃣ In Conclusion
Korea has become the fastest-aging country in the world, but preparation is less complete than Japan's. While this pension reform is an important first step, it's hard to avoid criticism as 'half-baked reform' due to the missing automatic adjustment mechanism and unclear government fiscal plans.
Raising premiums from 9% to 13% was a courageous decision. However, this alone is insufficient to create a sustainable pension system. Structural reforms like Japan's automatic adjustment mechanism are missing, so painful choices will likely need to be made again in the future.
The bigger problem is that deficits are accumulating across all welfare systems, not just national pensions. Health insurance generates 5 trillion won in annual deficits, and civil servant pensions generate 4 trillion won. As all these deficits are covered by taxes, fiscal pressure continues to grow.
Japan's case offers important lessons. The later the response, the lower the effect and the higher the cost. Japan reformed but it was already too late, resulting in national debt exceeding 250% of GDP. Considering Korea's aging speed is faster than Japan's, the next 10 years are golden time.
Three things are needed. First, complete pension reform including automatic adjustment mechanisms. Second, comprehensive welfare fiscal reform including health insurance and civil servant pensions. Third, transparent and fair burden-sharing plans considering intergenerational equity.
Also important is securing fiscal capacity through economic growth, not just reducing welfare spending. Potential growth rates must be raised through regulatory reform, technology innovation, and labor market improvements.
Aging is an unavoidable reality. However, depending on how we respond, it can become either a crisis or an opportunity. What's needed now is not diagnosis but action. Political courage, public concessions, and restoration of intergenerational trust are desperately needed.
Ultimately, the core of this problem is the choice between 'reforming painfully a little now, or collapsing much more painfully later.' Korea's economic sustainability depends on this choice.
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