A recent report of the Korea Development Institute has again called for reform of the Basic Old-age Pension plan.
The pension is intended to provide income support to elders who were unable to prepare for a comfortable life in their old age. It grants the bottom 70 percent of people aged 65 or older a monthly fixed benefit of up to 94,600 won ($86).
Yet the KDI report has found that the program pays benefits to many wealthy seniors who do not need them, while excluding a large number of elders who do need income support.
According to the report, more than half of the households in the top 10 percent of the income ladder receive the benefits, while among the households in the bottom 30 percent, only 68 percent benefit from the scheme.
The main reason for this problem is that beneficiaries are selected solely based on their own income and property holdings, disregarding the wealth of their sons and daughters who live with them.
As a result, many old citizens who live affluently with their wealthy children are granted benefits just because they earn no or little income on their own. Even some seniors living in the Tower Palace, a luxurious residential complex in Seoul that symbolizes wealth, are beneficiaries of the pension.
In contrast, a significant proportion of aged people who do earn a decent income or hold some property but have to support their poor children are not entitled to the pension.
The report illustrates the need to reform the criteria for beneficiary selection. The scope of beneficiaries needs to be narrowed to increase the benefit amount. According to OECD data, 45 percent of the elderly people in Korea live below the poverty line. The program should focus on these people.
In the long term, however, the government may have to scale down or phase out the pension program as it would become increasingly unsustainable due to rapid growth of the older population.
According to the Korea Institute of Public Finance, payments of the old-age pension will total 3.2 trillion won next year. Yet they are forecast to exceed 10 trillion won in 2020 and 30 trillion won in 2030 without any increase in benefits.
Nevertheless, major presidential candidates have all pledged to expand the scope and amount of benefits without giving any consideration to funding.
Their pledges are in sharp contrast with the view shared by experts that Korea needs to bolster the National Pension Scheme and the Basic Livelihood Security Program before expanding the old-age pension.
