Hankyung Research Institute: "Korea Ranks 1st in OECD for Aging Population and Elderly Poverty Rate...Urgent Need for System Reform"

[Asia Economy Reporter Kim Heung-soon] A private research institute has claimed that fundamental institutional reforms are necessary as South Korea's aging speed is nearly twice as fast as the average of the Organization for Economic Cooperation and Development (OECD), and its elderly poverty rate is also at the highest level.

According to the Korea Economic Research Institute (KERI) under the Federation of Korean Industries on the 17th, South Korea's aging speed over the past 10 years (2011?2020) was 4.4%, nearly twice the OECD average of 2.6%, and the elderly poverty rate as of 2018 (43.4%) was about three times the OECD average (14.8%).

KERI compared and analyzed aging countermeasures of G5 countries including South Korea, Japan, Germany, the United States, France, and the United Kingdom, and proposed the following responses to aging and elderly poverty issues: ▲ strengthening support for private pensions and enhancing the sustainability of public pensions to expand the income base for old age ▲ expanding demand for private-sector jobs for the elderly through labor market flexibilization and wage system reform.

Analyzing OECD statistics, KERI forecasted that due to rapid aging, South Korea's elderly population ratio, currently ranked 29th among OECD countries at 15.7% in 2020, will increase to 33.4% by 2041 and reach 37.4% by 2048, becoming the highest in the world. Furthermore, South Korea's current elderly poverty rate is overwhelmingly higher than that of the United States (23.1%), Japan (19.6%), the United Kingdom (14.9%), Germany (10.2%), and France (4.1%).

Expanding the Income Base for Old Age
Increasing Demand for Private-Sector Jobs for the Elderly

As of 2018, South Korea's public and private pension income replacement rate was 43.4%, less than half of the average pre-retirement income. In contrast, G5 countries averaged 69.6%. KERI interpreted this as G5 countries having activated private pensions and strengthened the fiscal soundness of public pensions.

G5 countries encouraged private pension enrollment through tax benefits. The tax support rate relative to private pension contributions was 29.0% on average for the G5 in 2018, with the United States at 41.0%, Japan 31.0%, France 28.0%, the United Kingdom 24.0%, and Germany 21.0%. The private pension enrollment rate among the working-age population in the G5 averaged 54.3%, meaning more than one in two people were enrolled in private pensions. In contrast, South Korea's tax support rate for private pensions was 20.0%, lower than G5 countries, and the enrollment rate was also low at 16.9%.

G5 countries operate public pensions in a way that involves 'paying more and receiving benefits later' compared to South Korea. The average insurance premium rate in G5 countries is 20.5%, more than double South Korea's 9.0%. Additionally, G5 countries plan to raise the pension benefit starting age from the current 65?67 years to between 67 and 75 years. South Korea also plans to raise the pension benefit starting age from 62 to 65, but this remains lower than in G5 countries.

South Korea's labor market is more rigid and has higher employment retention costs compared to G5 countries, resulting in an inadequate employment environment for the elderly. Regulations on dispatch and fixed-term employment and high dismissal costs were analyzed as factors making it difficult for companies to utilize diverse personnel and adjust workforce flexibly. G5 countries allow dispatch work in most industries, including manufacturing, and except for Germany and France, the United States, the United Kingdom, and Japan have no limits on dispatch and fixed-term periods. In contrast, South Korea allows dispatch only in some industries excluding manufacturing and imposes a two-year limit on both dispatch and fixed-term employment. The dismissal cost, including severance pay for firing one worker, averages 9.6 weeks' wages in G5 countries, whereas in South Korea, it is 27.4 weeks' wages, 2.9 times higher.

South Korea mainly uses a seniority-based wage system, where wage burdens increase with tenure and age, whereas G5 countries primarily use job- and performance-based wage systems, creating a contrast. KERI argued, "South Korea needs to establish an environment that can provide quality private-sector jobs for the elderly through a flexible labor market and job- and performance-based wage systems, similar to G5 countries."

This content was produced with the assistance of AI translation services.