National Pension Service’s Headquarters in Jeonju (Source: The Korea Times)

The declining birthrate in South Korea has sparked many national discussions that have become increasingly urgent. Despite ongoing dialogue, the pressing question remains: how can the nation navigate this crisis and ultimately emerge with viable solutions? In 2023, President Yoon Suk-yeol officially declared a “National Population Emergency” in response to the rapid decline in population. The government has initiated a series of resource-intensive policy measures to raise the birth rate above one child per woman by 2030–up from a startling 0.72 in 2023. In a bid to avert a future resembling a dystopia, South Korea must not only focus on increasing its birthrate but also prepare for the significant transition to an aging society. Part of the preparation involves reforming key social welfare policies, such as the National Pension System and National Health Insurance.

By 2072, nearly half of the population – a staggering 47.7% – is expected to be aged 65 or older in South Korea. In an aging society, the national budget takes a hard hit – since there are fewer people of working age compared to the older population, those that do pay taxes need to support far more and therefore cough up a bigger share. According to estimates by the Korean government, without vast reform, the national pension fund could be entirely depleted within three decades, with deficits projected to begin as early as 2041. As South Korea grapples with these challenges, policymakers have been under pressure to devise sustainable strategies for the national pension and social welfare systems amid a soaring dependency ratio while ensuring fairness and equity between generations.     

Redefining “Elderly”

Elderly Job-seekers Looking at a Recruitment Poster (Source: Chosun)

The issue of transitioning toward an aging society is not exclusive to South Korea but is a matter of concern in many member countries of the Organization for Economic Cooperation and Development (OECD) countries, with South Korea ’s case being one of the most severe among them. On the verge of this worldwide demographic shift, the meaning of what it is to be an “elderly” is changing gradually. Around the world, the idea of what should be the retirement age is being reconsidered as a part of starting the systematic process to reform relevant policies. In 2017, the Japanese Gerontological Society suggested that the definition of “elderly” be changed to include those aged 75 and above, while categorizing people aged 65 to 74 as semi-elderly. But the idea of being “elderly” is not the only thing where changes have been made in Japan.

The need for structural reform and innovation is now imminent to tackle the adverse effect of “shrinkonomics” – a term often used to explain the economics of aging societies. Japan serves as a test case for “shrinkonomics”, the country is like a laboratory for policy reform trials as it is in the closest proximity to becoming an aging society. One of the first policy measures taken by Japan was to increase the age of retirement from 60 to 63. Some countries are even thinking about pushing it up to 70 by encouraging people to stay on the job longer, while some countries already have a retirement age close to that. For example, in Italy and the United States, the retirement age is currently set at 67, while in Germany it is 65. Recently, China also got on board, approving a plan to raise its retirement age. In South Korea, the official retirement age is 60, yet many retirees are reentering the workforce in roles unrelated to their former careers, often taking on manual labor jobs.   

Pension Dilemmas: Will South Korea Find a Way?

As South Korea works to avoid depleting its national pension fund, it needs to find ways to increase its financial resources. This can be done by raising individual contributions, improving how National Pension Service (NPS) assets are invested, or doing both. Previously, the working-age population is required to contribute 9 percent of their annual income to the fund – the average contribution among the OECD countries stands at 18 percent. However, in March 2025, a new policy was passed in the National Assembly percentage was increased to 13% as a measure to delay the collapse and minimize the impact of the demographic transition on the National Pension System in the short term. The increase in the contribution rate will be made throughout eight years beginning in 2026, with an annual increase of 0.5%. Increasing the rate already faced resistance from youth before the bill was even passed. A survey by K-Policy Platform showed that the country’s youth have been hesitant to contribute more, even if that means they receive a smaller amount of pension later, citing the high living expense in the present. A more recent survey on the acceptance of the newly passed policy to increase the rate shows that 60% of people in their 20s and 30s oppose the new reform. 

Another alternative solution could be to lower the benefits already in the present, an extreme measure considering South Korea’s delicate balance between sustaining economic growth and providing essential social protections. This can also lead to a dire situation for the elderly population. South Korea already has the lowest average monthly pension benefit among OECD countries; considering the living expenses in South Korea, the average amount of pension benefit is not adequate for the elderly to survive solely in the current economy. One proposed but not worked on the measure is to introduce automatic stabilization mechanisms that would modify benefits based on factors such as inflation or the number of contributors in the system, for which some youths criticized the recent reform as a rough-and-ready agreement

NPS Branch Northern Seoul (Source: The Korea Economic Daily)

On the other hand, the Korean government pledged in its national pension fund reform proposal to increase the NPS’s investment return from the current 4.5% to over 5.5%. However, concern was recently put forward in an article published in The Korea Economic Daily. According to the article, NPS is struggling to recruit investment managers, due to the remote office location outside of Seoul – in  Jeonju, North Jeolla Province – and comparatively low pay. The article said in 2017 the NPS investment unit was unable to fill 34 positions, a number that rose to 49 in 2022, before dropping to 28 in 2023, raising concerns about the efficiency of the unit.  

Passing the crossroad

Though it might be considered a rather delayed beginning of preparation, the South Korean government has taken a step toward reform by increasing the contribution rate. But the question remains, is the newly passed policy adequate for supporting the National Pension System from breaking down, or does it mark the beginning of a new social problem of generational conflict with the increasing financial burden of the younger generation? Amidst this situation, South Korea needs to carefully consider its next steps to protect the rights of both the present and future elders. With a demographic decline, an aging society, and a shrinking workforce converging, South Korea is approaching a crucial turning point. Addressing these challenges through timely structural changes will be key to mitigating the impacts of “shrinkonomics” and securing the nation’s future.

Sadia Masharuf
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