Entering a Super-Aged Society in 2025... Only 48.6% of Elderly Are "Preparing for Old Age"

Only One-Third of Single Elderly Households Prepare for Old Age
31% Secure Living Expenses Through Support
National Pension to Deplete After 2057
Strengthen Safety Net with Three-Tier Pension

Experts: "Public and Retirement Pensions
Have Insufficient Income Replacement Rates
Need to Provide Measures to Encourage Private Pensions"

Editor's NoteAs South Korea enters a super-aged society, addressing the issue of elderly poverty has emerged as a critical social challenge. The National Pension is also expected to run a deficit in about 20 years, which under the current circumstances will place a heavy burden on national finances and pass a significant load onto the next generation. There are calls to urgently establish policy support such as expanding private pension tax benefits to encourage individuals to prepare for retirement on their own. Asia Economy examines pension savings tax reform measures, including expanding tax deductions, to help prepare for a comfortable retirement income.

[Asia Economy Reporters Oh Hyung-gil and Ki Ha-young] #. Park Eun-jung (59), who works as a wedding helper, has seen her workload almost completely disappear over the past two years due to the impact of COVID-19. Although she started working after her husband retired earlier than expected, she can no longer continue, leaving her deeply worried about her retirement. Having been a housewife for nearly 30 years, she is not eligible for the National Pension. She had considered a small apartment as her retirement preparation, but her son, who runs a restaurant, is now facing closure, forcing her to consider selling the apartment. She feels overwhelmed thinking about how to spend the rest of her life, especially if she falls ill and needs a large sum of money.

#. Lee Cheol-young (60), who retired from a large corporation three years ago and is currently working as a contract facility manager, is looking for a new job but it is not easy. Due to the worsening economy, contract renewals are difficult, and although he can receive unemployment benefits for a while, his age is a significant barrier. He will be eligible to receive the National Pension starting at age 62 in two years, but until then, he is unable to adequately prepare for retirement. Fortunately, he receives 900,000 KRW monthly from a pension savings insurance he enrolled in early while working, which greatly helps with his livelihood.

As the society rapidly ages, urgent measures are needed to secure retirement income. South Korea’s elderly poverty rate is among the highest in the OECD, but most people are inadequately prepared for retirement. Especially with the retirement of the baby boomer generation (born 1955?1963), poverty among the elderly population is expected to become a serious social issue.

The problem is that the depletion point of the National Pension, considered a social safety net, is approaching rapidly. Although solutions such as reducing pension benefits are being considered, there are concerns that the crisis may arrive sooner. Due to aging, the number of recipients is increasing while the birthrate is extremely low, resulting in a shortage of contributors and a funding emergency. Comprehensive pension reform including both public and private pensions is urgently needed.

Severe Poverty Among the Elderly... Retirement Preparation 'Failing Grade'

As the population aged 65 and over is expected to exceed 20% by 2025, entering a super-aged society, the number of elderly suffering from poverty continues to rise. According to the '2021 Elderly Statistics' released by Statistics Korea, the elderly population aged 65 and over this year is 8,537,000, accounting for 16.5% of the total population.

While the number of elderly is rapidly increasing, economic conditions are deteriorating. The relative poverty rate (below 50% of median income) among the retired population aged 66 and over was 43.2% in 2019, the highest among OECD member countries.

The high relative poverty rate among the retired population is attributed to insufficient retirement preparation. In 2019, only 48.6% of all elderly respondents said they were preparing for retirement. Particularly, among elderly living alone, only one in three was preparing for retirement. Among elderly living alone, 31.1% reported relying on government and social organization support for living expenses, which is double the rate of all elderly (15.8%).

[Image source=Yonhap News]

Public Pension Failing to Fulfill Its Role

Recently, the National Pension Service’s audit at the National Assembly’s Health and Welfare Committee resembled a forum of criticism on pension reform. There were numerous calls to expedite reform as the fund is expected to be depleted as early as 2054, just 23 years from now.

According to the 2018 financial forecast, the National Pension was expected to run a deficit starting in 2042 and the fund to be exhausted by 2057. However, due to aging, low birthrates, and the impact of COVID-19, the depletion date is likely to be brought forward. It was confirmed that the financial forecast overestimated total fertility rate, economic growth rate, and labor force participation rate compared to actual values.

Even those receiving the National Pension face instability in maintaining their livelihood due to low benefit amounts. To maintain the fund while increasing the income replacement rate, contribution rates must be raised, but social discussions have been postponed until next year.

Active Promotion of the 'Three-Tier Pension' Preparation Needed

South Korea’s pension system is structured in three tiers. The first tier is the National Pension for basic livelihood security, the second tier is the retirement pension for stable retirement life, and the third tier includes private pensions for a comfortable lifestyle. To strengthen this, mandatory enrollment for all workers in retirement pensions is being pursued.

However, since the elderly heavily depend on the National Pension, there is a growing call to find ways to dramatically increase National Pension enrollment rates while also enhancing the roles of retirement pensions, private pensions, and housing pensions.

Experts suggest expanding tax benefits to encourage individuals to save for private pensions on their own. Jeong Won-seok, a research fellow at the Korea Insurance Research Institute, emphasized, "Since the income replacement rate expected from public and retirement pensions is insufficient, incentives must be provided for individuals to accumulate private pensions themselves." He added, "The current private pension tax credit partially applies income deductions to the middle class and above, weakening the incentive to enroll, and low-income groups with lower tax burdens lack substantial tax benefits."

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