President Lee: "Fake Divorces to Avoid Pension Cuts"... Basic Pension's 20% Couple Reduction to Be Reformed

The spousal reduction system, which cuts basic pension payments by 20% for couples who both receive the benefit, is gradually being phased out, particularly for vulnerable groups. As President Lee Jaemyung stated, "Being married should not be a disadvantage," expectations are rising that reforms to the basic pension system will pick up speed.

Yonhap News

원본보기 아이콘

According to the National Assembly's Health and Welfare Committee on March 16, the Ministry of Health and Welfare reported on the current status of major work initiatives at a full session of the standing committee held on March 10. The Ministry introduced plans to enhance the coverage of the existing pension system to ensure a stable retirement for citizens in the era of super-aging. In particular, the Ministry announced that it would prioritize reforming the spousal reduction system, which reduces each spouse's pension amount by 20% when both receive the basic pension, starting with vulnerable groups.

Currently, the basic pension spousal reduction system applies a 20% reduction to each spouse's pension if both members of a couple aged 65 or older, who fall within the bottom 70% income bracket, receive the benefit. This system was designed based on the so-called "economies of scale" logic, which assumes that couples living together can save on housing and living expenses by sharing costs. The intention was to ensure fairness relative to single elderly households and to reduce the fiscal burden on the state. However, criticisms have persisted that such reductions threaten the livelihoods of low-income elderly couples who are already struggling financially.

In fact, a report by the National Pension Research Institute found that the perceived burden of living expenses varied significantly from the scenario assumed by the system, depending on income levels. According to the report, the average monthly expenditure of elderly couples in the bottom 20% income bracket was 1.74 times higher than that of single elderly households. This far exceeds the system's standard of 1.6 times, indicating that a 20% pension reduction imposes a much harsher financial burden on these households compared to the average.

Previously, the Ministry of Health and Welfare unveiled a plan submitted to the National Assembly to reduce the current 20% reduction rate for elderly couples in the bottom 40% income bracket to 15% by 2027, and further to 10% by 2030, in a phased approach. This is interpreted not as a simple across-the-board reduction, but as an effort to prioritize the protection of vulnerable groups who need the basic pension most.

Political circles are also taking action to improve the system. The National Assembly's Health and Welfare Committee is currently discussing a proposed bill to completely abolish the spousal reduction system in stages over three years. The roadmap in the bill calls for lowering the reduction rate to 10% in 2026, to 5% in 2027, and for full abolition in 2028.

With President Lee signaling the possibility of reform by identifying poverty as the main cause of elderly suicide on X (formerly Twitter) on March 16, efforts to improve the system are expected to accelerate. President Lee explained, "There are even cases where people fake divorce to avoid pension reductions," adding, "Reductions are due to fiscal shortages, so they should be addressed as much as possible." He continued, "Korea has one of the highest overall and elderly suicide rates in the world, and poverty is the biggest cause of elderly suicide. To reduce elderly poverty, which can even lead to suicide, it seems necessary to change the basic pension system."

However, the significant fiscal cost associated with reform is an issue that must be addressed. According to an analysis by the National Assembly Budget Office, if the spousal reduction system is phased out, an additional annual average of 3.3 trillion won, totaling 16.7 trillion won over five years until 2030, would be required. The Ministry of Health and Welfare is carefully reviewing detailed plans, taking into account both fiscal responsibility and the system's fairness. Reference is also being made to advanced welfare countries such as Norway and Sweden, which still operate some form of reduction system for couples. Experts emphasize that for the basic pension to fulfill its role as a meaningful public assistance program, discussions should focus on strengthening support for vulnerable groups, such as low-income and low-asset elderly couples.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.