Although Korea is aging at the fastest rate, Koreans are highly likely to have a poor life in later years as they imperfectly prepare for life after retirement. The National Pension, which guarantees basic living, is on the verge of depletion, and private pension programs for stable life after retirement also have a low rate of return. If this trend continues, population aging will spell doom not only for the elderly but also for young Koreans burdened with supporting older Koreans.
This year, the number of senior citizens aged 65 and older was 9,018,000, or 17.5% of the total population. After three years, Korea will enter a super-aged society with the elderly taking up more than 20% of the population. However, the thing is, less than 9% of households are confident that they are "well prepared for their later years." This is why the elderly in other developed countries enjoy a happy and relaxed life after retirement, while older Koreans cannot stop working until they are over 70.
The real income replacement rate of the National Pension is 31.2%, which is significantly lower than the average (51.8%) of the OECD member countries. Even this pension fund will be depleted around 2055. This is because despite having to readjust insurance premiums and wage levels every five years, it has been left untouched since 2007. Up until now, the number of newborn babies who would pay insurance premiums has been halved, and the number of the elderly who need to receive insurance payouts has doubled. If the fund runs out, future generations will have to pay 30% of insurance payouts. Will the pension system, which is so distrusted to the extent that young Koreans call it a "multi-level marketing scheme against the Korean people," be sustainable?
The high-cost basic pension system, which has low efficiency, must also be fixed. Although it spends 20 trillion won a year to give 300,000 won a month to 70% of the elderly in the bottom income groups, poverty reduction effects are less than 7%. Nevertheless, the opposition party’s bill on giving out 400,000 won a month to all senior citizens is pending in the National Assembly. Just by raising the payout by 100,000 won, the annual expenditure will surge to 100 trillion won in 2040, risking the entire public pension system. It is necessary to narrow the payout eligibility only to cover vulnerable older Koreans for focused support.
The reason why the elderly in advanced countries has a stable life after retirement is that their public pension systems are continuously reformed to balance retirement security and fiscal stability. Japan, for instance, has been gradually reforming its pension system since 2004. It has increased the starting age of receipt to 60 to 75 in April this year. Plus, it is recently pushing to extend the premium payment period by five years to 64. In the case of Korea, pension reform should be carried out within the first half of next year, as there is no burden of elections. We also need to seek ways to expand retirement and individual pension systems that will supplement public pensions and raise the rate of return that falls way short of inflation rates.