The Yoon Suk Yeol administration introduced a comprehensive reform plan for the national pension scheme, Wednesday. Key elements of the plan include increasing the premium rate from the current 9 percent to 13 percent and raising the income replacement rate from 40 percent to 42 percent. Additionally, the contribution rate will be adjusted incrementally, with changes varying by age group.

An automatic balancing mechanism will also be implemented to adjust pension benefits based on changes in population and economic conditions. This new system aims to improve the sustainability of the pension scheme rather than guaranteeing specific benefits. This marks the first time in 21 years that the country has introduced a uniform pension reform device. We view this as a significant advancement compared to the previous reform introduced last year, which faced criticism for its lack of concrete action plans.

The government plan also includes measures aimed at enhancing benefits for young people and addressing the country's chronic low birthrate. For example, it proposes additional advantages for military service and childbirth. Additionally, the plan explores the possibility of extending the mandatory pension subscription age from 59 to 64. This potential change will require thorough discussion, especially concerning the extension of retirement ages and the continued employment of senior workers.

The plan aims to prioritize large enterprises by requiring them to offer retirement pensions and incentivizing compliance through tax benefits and other perks. Starting in 2026, the basic pension for elderly citizens will be increased by 100,000 won ($75), reaching a total of 400,000 won, beginning with those in the low-income bracket. Additionally, the number of individuals receiving the basic pension is expected to grow from 6.51 million last year to 9.14 million in 2030, and further to 13.3 million by 2050.

Despite the considerable time and effort invested, significant challenges and obstacles are anticipated until a social consensus is reached among the relevant parties. Specifically, under the plan for varying premium increases by age, individuals in their 50s will see an annual increase of 1 percentage point, while those in their 40s will face a 0.5 percent increase. People in their 30s will experience a 0.3 percent increase, and those in their 20s will see a 0.25 percent increase. This approach is designed to ease the financial burden on younger generations while placing a greater responsibility on older individuals, thereby promoting generational fairness.

This unprecedented system, which has no direct equivalent globally, is likely to create generational divisions, particularly provoking reactions from those over 40. While the automatic balancing mechanism, commonly used by OECD member countries, is expected to positively impact the sustainability of the pension scheme, it may also lead to disputes. These could arise from potential reductions in pension benefits or delayed payments due to the rapidly aging population and worsening low birthrates. Additionally, controversies are anticipated concerning the proposed extension of the mandatory subscription age and retirement age.

Now the ball is in the court of the National Assembly. Lawmakers must work to build broad social consensus by thoroughly considering input from various sectors of society. Given that the reform plan involves higher contribution rates and reduced benefits, it is expected to face significant opposition. Therefore, it is crucial for all parties to approach discussions with care and sensitivity from the outset. Rival parties should start working together by establishing consultative bodies, such as a special committee. Fortunately, with national elections not scheduled until June 2026, there is a valuable opportunity to reach a major social agreement before the end of the year. Lawmakers should recognize the urgency of the situation: each day of delay in pension reform could result in a loss of 100 billion won.