South Korea's current basic pension system provides benefits to elderly citizens aged 65 and older who fall within the bottom 70% in terms of recognized income. The system aims to reduce elderly poverty, but as the economic conditions of older generations have improved, the current selection criteria have become less effective. This article explores necessary reforms in pension eligibility criteria and proposes an improved approach.
Current Status and Issues
1. Structure of the Basic Pension System
- Introduced as the Basic Old-Age Pension in 2008 and expanded to the Basic Pension in 2014.
- Currently covers the bottom 70% of elderly individuals in terms of recognized income.
- As of 2023, approximately 6.5 million seniors receive basic pension benefits.
- Pension payments: KRW 200,000/month in 2014 → KRW 323,000/month in 2023 → Expected to reach KRW 343,000 in 2025.
2. Key Issues
- The "bottom 70%" criterion is becoming less effective as overall economic conditions for seniors improve.
- In 2025, the eligibility threshold is expected to reach 93% of the median income for a two-person household.
- With a rapidly aging population, financial burdens from pension expenditures continue to increase.
- The current system does not sufficiently prioritize the most economically vulnerable seniors.
Changes in Elderly Poverty Rates and Future Projections
Earlier generations (born before the 1950s) experienced significantly high poverty rates, whereas later generations (born in the 1960s and 1970s) are generally in better financial standing.
National pension coverage and average pension benefits have steadily increased across generations.
Long-term projections indicate a gradual decline in elderly poverty rates.
Proposed Pension Reforms
1. Revising the Eligibility Criteria
Transition from the current "bottom 70% of elderly income earners" system to a model based on a fixed percentage of median income.
Initially, set eligibility at 100% of median income, gradually reducing it to 50% over time.
2. Enhancing Fiscal Efficiency
Reform efforts aim to slow the increase in pension expenditure while directing resources toward seniors in greater financial need.
Long-term plans include integrating the basic pension with the National Basic Livelihood Security System to establish a "minimum income guarantee for the elderly."
3. Improving Pension Payment Structures
Introduce a tiered payment system that increases pension amounts for lower-income seniors.
Develop incentive programs linking pension benefits to continued participation in the labor market for capable seniors.
Expected Outcomes
- Gradual reduction of the pension recipient ratio, easing fiscal burdens.
- Reallocation of savings to provide higher pension payments for low-income seniors.
- Establishment of a sustainable pension system in coordination with the national pension scheme.
The basic pension system plays a crucial role in alleviating elderly poverty, but its current structure does not adequately reflect economic trends or the pace of aging. Adjusting the eligibility criteria from a fixed percentage of elderly income earners to a benchmarked percentage of median income is a necessary reform.
In the long run, these changes will help secure the sustainability of the pension system while ensuring that resources are efficiently allocated to those most in need.