Korea’s basic pension for elderly should be differentiated by income, assets

[Photo by MK DB]

Korea should differentiate basic pension for seniors based on their assets and income as the number of recipients is rapidly increasing due to the aging population and as senior poverty has eased in the country, an expert suggested on Wednesday.

Kim Soo-wan, a professor of social welfare at Kangnam University, made the suggestion during a public hearing organized by a parliamentary special committee on pension reform held at the National Assembly. He is a member of the private advisory committee under the special committee.

The current Basic Pension Act requires the minister of health and welfare to announce the income threshold every year to ensure that seniors aged 65 and older in the bottom 70-percent income bracket receive basic pension and the elderly to apply for the benefit after calculating their income. This year, the threshold is set at 2.02 million won ($1,524) per month for a single-person household and seniors receive 323,180 won per month upon application if their income is lower that threshold.

The problem is that the current system goes against its original purpose of stabilizing the living conditions of senior citizens and promoting their welfare and only depletes state funds, as the target of recipients is fixed at 70 percent of the total number of seniors and the amount is also set to be the same regardless of their income level. In particular, the number of recipients and the resulting financial burdens are increasing every year as the elderly population grows.

The number of recipients increased by more than 40 percent to 6.12 million last year from 4.35 million in 2014. According to the National Pension Research Institute, state funds injected into the basic pension will grow to 40 trillion won in 2030 and 78 trillion won in 2040, from about 22 trillion won this year.

It is not uncommon for elderly people with relatively high income to receive the basic pension. This is because the government has set a target for seven out of 10 seniors to receive the pension. “Since the government’s aim is to make 70 percent of seniors eligible for basic pensions, excluding those who gave up applying for them, the number of actual beneficiaries is higher than those in the bottom 70-percent income bracket,” said Kim.

Furthermore, the current universal payment is not appropriate as the poverty rate for the elderly has improved from the time when the basic pension was introduced. The relative poverty rate for the elderly decreased by 10.7 percentage points to 37.7 percent in 2021 from 48.4 percent in 2013.

Kim proposed differentiating payments by income brackets if the government seeks to implement President Yoon Suk Yeol’s campaign pledge of increasing the upper limit of the basic pension to 400,000 won. The government would 350,000 won to the elderly in the bottom 70-percent income bracket next year, but it will pay 400,000 won in 2025 and 500,000 won in 2026 to those in the bottom 40 percent.

He also proposed setting the median income as a new standard for the pension, instead of the current 70 percent of income, saying that it is necessary to reform the pension in a way that focuses more on the policy goal of alleviating senior poverty by lowering the scope of target recipients from the current level.