Pension policy in South Korea

The poverty rate of elderly people in South Korea is the highest among the OECD countries

Poverty rate in South Korea (age 65+) in 2011

The pension scheme for elderly in South Korea developed relatively recently when compared to other democratic nations. One-half of Korea's population aged 65 and over lives in relative poverty, nearly four times higher than the OECD average of 13%. Elderly poverty is thus an urgent social problem. Furthermore, public social spending provided by general government (that is central, state, and local governments, including social security funds) per GDP in South Korea is the lowest among the OECD countries, a half of OECD average. ^[2]

There are three different types of pension incomes that the elderly (65 years or older) can receive: social welfare, public pension, and private pension.^[1]

History

1990–2007

National health insurance was introduced in South Korea in 1977.^[3] By 1989 South Korea had universal health coverage.^[3] Other social insurance programmes in South Korea include the Industrial Accident Compensation Insurance (IACI, South Korea's first social insurance program dating to 1964), Employment Insurance (EI, dating to 1995).^[3]

The recent trend in South Korea is to increase welfare spending: between 1990 and 2007 South Korean government expenditure on welfare increased at an 11% annual rate in real terms, which was the fastest rate of increase in the Organisation for Economic Co-operation and Development (OECD) area.^[4][3] Social expenditure in the years 1990–2001 rose from 4.25% to 8.7% (with a peak at 10.9% in 1998).^[5][3]

2007–present

Spending of welfare in South Korea formed 7.6% of GDP in 2007, (the OECD average was 19%).^[4] The primary social welfare programme in South Korea is the Basic Livelihood Security Programme (BLSP), which covers 3% of the country's population (about a fifth of the 15% of South Koreans living in relative poverty).^[4] Another program, the National Basic Livelihood Security System (NBLSS) was introduced in 2001.^[3] Benefits for families in 2011 were equivalent to 0.5% of the South Korean GDP, the lowest in the OECD (OECD's average was 2.2%).^[4]

Welfare for the elderly amounts to 1.6% of GDP as of 2007 (a quarter of the OECD average).^[4] Pensions in South Korea are administered by the National Pension Service (NPS), introduced in 1988.^[4] Kim reported that in 2002, only 6.5% of the South Koreans over the age of 60 lived on public pensions.^[3] About one-fifth of the elderly receive pensions, which is a major factor contributing to the fact that nearly a half of the South Korean elderly live in relative poverty, which is the highest proportion among OECD countries.^[4]

A quarter of welfare spending from the government, in forms of cash payments, goes to the poorest 20% of the population, which is contributing to the growing inequality in the South Korean population.^[4] The South Korean tax and welfare system is the least effective in reducing inequality among all of OECD countries.^[4]

Social welfare

Basic Livelihood Security Programme

The Basic Livelihood Security Programme is a welfare system that provides cash and other benefits such as housing and education for citizens in absolute poverty.^[1] It was enacted in 1999, under the National Basic Livelihood Security Act.^[6] A person is in absolute poverty when their income is below the minimum coast of living. In 2011, it was reported that approximately 1.4 million people received benefits from the BLSP program, with only 380 thousand of them being elderly.^[1] This accounts for only 6.3% of the Korean population over the age of 65. This program does not provide complete relief to the elderly in South Korea because of the strict criteria to be accepted in the program. In order to qualify, a person must prove that they cannot receive possible assistance from their family members, and must include their assets in the income criteria.^[1] This has caused many people to be turned away from the program, nevertheless since the implementation of the program, the eligibility criteria has been relaxed since 2003. In 2008, the program was expanded to include a Long-Term Care Insurance for the Elderly.^[7]

Basic Old-Age Pension

In 2008, Korea introduced the Basic Old-Age Pension. According to the Ministry of Health Welfare and Family Affairs, the Basic Old-age Pension is "designed to enhance the elderly welfare by providing a monthly pension payment to the elderly in need."^[8] This pension was meant to benefit workers who were contributing to the National Pension Scheme.^[1] By 2012, the pension was only providing 16% of the minimum cost of living, and benefited 67% of Korea's elderly over the age of 65.^[1] It was extended in 2014 to allow monthly allowances of approximately $179( KRW 200,000) to elderly people over the age of 65 where were in the bottom 70 percentile of income earned.^[7] In 2014, approximately 4.9 million people benefited from this program.^[7]

South Korea's old-age pension scheme covers individuals age 60 or older for the rest of their life as long as they have satisfied the minimum of 20 years of national pension coverage before hand.^[9] Individuals with a minimum of 10 years covered under the national pension scheme and who are 60 years of age are able to be covered by under a 'reduced old-age pension' scheme. There also is an 'active old-age pension' scheme that covers individuals age 60 to 65 engaged in activities yielding earned income. Individuals age of 55 and younger than 60 who are not engaged in activities yielding earned income are eligible to be covered under the 'early old-age pension' scheme.^[10] Around 60% of all Korean elders, age 65 and over are entitled to a 5% benefit of their past average income at an average of 90,000 Korean won (KRW).^[11] Basic old-age pension schemes covered individuals 65 years of age who earned below an amount set by presidential order. In 2010, that ceiling was 700,00 KRW for a single individual and 1,120,000 for a couple, equivalent to around $600.00 and $960.00.^[9]

Public pension

The National Pension Scheme

The National Pension Scheme is the public pension scheme created in 1988 in South Korea. It is a part of Korea's Social Security Programs, and was established through the National Pension Act in 1986.^[12] In order for a person to qualify for pension, they must be at least 61 years old with at least ten years of contributions.^[10] Reduced early pension can be obtained at the age of 56. The normal pension age will be increased to 65 years by 2033, and reduced early pension will be increased to 60 years.^[10] The National Pension Scheme was created with a strong redistributive element and participation is mandated by law.^[1] Currently, only 29% of elderly received old-age pensions from the National Pension Scheme in 2013.^[1] One of the current issues with the National Pension Scheme is that not all retirees will be able to draw benefits from the pension because they have no completed the ten year contribution requirement.^[13]

The South Korean pension system was created to provide benefits to persons reaching old age, families and persons stricken with death of their primary breadwinner, and for the purposes of stabilizing its nations welfare state.^[14] South Korea's pensions system structure is primarily based on taxation and is income-related. In 2007 there was a total of 18,367,000 insured individuals with only around 511,000 persons excluded from mandatory contribution.^[15] The current pension system is divided into four categories distributing benefits to participants through national, military personnel, governmental, and private school teacher pension schemes.^[16] The national pension scheme is the primary welfare system providing allowances to the majority of persons. Eligibility for the national pension scheme is not dependent on income but on age and residence, where those between the ages of 18 to 59 are covered.^[17] Any one who is under the age of 18 are dependents of someone who is covered or under a special exclusion where they are allowed to alternate provisions.^[9] The national pension scheme is divided into four categories of insured persons – the workplace-based insured, the individually insured, the voluntarily insured, and the voluntarily and continuously insured.

Employees between the ages of 18 to 59 are covered under the workplace-based pension scheme and contribute 4.5% of their gross monthly earnings.^[14] The national pension covers employees who work in firms that employ five or more employees, fishermen, farmers, and the self-employed in both rural and urban areas. Employers are also covered under the workplace-based pension scheme and help cover their employees obligated 9% contribution by providing the remaining 4.5%.^[9] Anyone who is not employed, of the age of 60 or above, and excluded by article 6 of the National Pension Act but of the ages between 18 and 59, is covered under the individually insured pension scheme.^[18] Persons covered by the individually insured pension scheme are in charge of paying the entire 9% contribution themselves. Voluntarily insured persons are not subjected to mandatory coverage but can choose to be. This category comprises retirees who voluntarily choose to have additional benefits, individuals under the age of 27 without income, and individuals whose spouses are covered under a public welfare system, whether military, governmental, or private school teacher pensions.^[17] Like the Individually insured persons, they too are in charge of covering the full amount of the contribution. Voluntarily and continuously insured persons consists of individuals 60 years of age who want to fulfill the minimum insured period of 20 years to qualify for old age pension benefits.^[18] Excluding the workplace-based insured persons, all the other insured persons personally cover their own 9% contribution.^[17]

See also

• Ministry of Health and Welfare (South Korea)
• Poverty in South Korea

Further reading

• Gyu-Jin Hwang (2006). Pathways to State Welfare in Korea: Interests, Ideas And Institutions. Ashgate Publishing, Ltd. ISBN 978-0-7546-4261-9. Retrieved 19 January 2013. 
• Myungsook Woo (2004). The Politics Of Social Welfare Policy In South Korea: Growth And Citizenship. University Press of America. ISBN 978-0-7618-2978-2. Retrieved 19 January 2013. 

References