Reverse mortgage rules for the elderly reviewed

Reverse mortgages could soon be easier for the elderly to obtain as the government plans to revise conditions on the housing pension program.

The latest measures, released on Wednesday, are a follow-up to earlier measures first announced in September to address concerns about the aging and the shrinking population.

Housing pension schemes, which are reverse mortgages, in which money is borrowed based on the equity value of a home already owned, allow the elderly to stabilize their income.

“The increase in the aging population is threatening our economy’s sustainability in various areas not only in productions, but also in housing, pensions, fiscal management and senior citizens’ welfare,” said Finance Minister Hong Nam-ki. “As such, the government has come up with measures that would raise industrial productivity, reform housing policy and strengthen pension funds that would guarantee the livelihoods of senior citizens and enhance the sustainability of welfare policies for elderlies and long-term care insurance.”

According to the government, the age in which people can start subscribing to housing pensions will be lowered from the current 60 to 55. Additionally, spouses will be able to inherit the housing pension. Under the current regulations, the spouse can only inherit the housing pensions with the approval of surviving children.

The government is also changing the method for determining the program’s 900 million won ($771,000) maximum. Previously, it was calculated using market value. Now, it is government-assessed value. This will allow senior citizens with more expensive apartments to be eligible, as the government-assessed values are usually between 60 to 70 percent of the market value.

Assets put up for the housing pension can now be leased, and the program participant does not have to be living in the property to mortgage it.

One of the reasons for the reform is the fact that Korean wealth is disproportionately held in real estate assets. As of 2018, housing assets owned by households and nonprofit organizations accounted for 50 percent of the total, while financial assets accounted for 22 percent.

The government is also planning to expand the use of retirement pensions, which will result in the gradual elimination of lump-sum retirement payouts.

A bill sitting in the National Assembly requires any business with more than 100 employees to adopt the retirement pension system.

To encourage more people to move to retirement pensions and private pensions, the government has decided to raise the tax credit from 7 million won to 9 million won for those who are aged 50 or older.

As of 2017, only 50.2 percent of paid workers are subscribed to retirement pensions. Only 1.9 percent of those are in a monthly pension program, while the rest collect a lump sum.

The government said it will come up with a strategy that will create new industries for retired senior citizens by the first half of next year.

Korea has the lowest fertility rate in the world and also has the fastest-aging population.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]