Saving for old age

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Saving for old age

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Kim Soo-bong

Korea has the world’s fastest-aging population coupled with a low birthrate and higher life expectancy. In 1994, it passed the threshold for an aging society, with people aged 65 and over accounting for more than 7 percent of the population. By 2018, the proportion of the elderly is expected to reach 14 percent, bringing Korea into the category of an aged society, and in 2026 it will cross the hyper-aged threshold with an elderly population of 20 percent.

Korea’s response to the demographic transition, however, is far slower than it should be. According to the national statistics office, the relative poverty rate among households of the elderly is at 49.3 percent, more than four times the 12.8 percent average of countries in the Organization of Economic Cooperation and Development. Relative poverty refers to household income of less than half the country’s median. The debate about institutionalizing a new basic pension of 200,000 won ($187) a month to senior citizens with little or no income underscores growing concerns and the social cost of an aging population.

According to an OECD report, Korea’s population aging index - measured by the number of people aged over 65 against those under 14 - is expected to reach 429.3 percent by 2050, beating Germany’s 258.4 percent and Japan’s 337.5 percent. When Koreans retire, they can no longer expect to turn to their children for support. The younger generation is already burdened with the need to sustain their own family, and young people have grown used to individualistic values.

The Korean baby boom generation born from the mid-1950s to 1960s has been burdened with supporting elderly parents and raising children while struggling with high unemployment rates and expensive living costs. Yet they cannot expect the same commitment from their own children. They are unlucky to be the last generation expected to fulfill filial duties to their parents - and the first not to expect the same from their own children. An elderly person dying homeless and without a family has now become common in our society.

Not being prepared for an aging society is as catastrophic for the nation as it is for any individual. If individuals and households cannot meet the challenges of an aging society, the country’s economic potential will also be in jeopardy. The society must build a foundation for seniors to age more comfortably and safely.

Many countries have various types of pension schemes, mostly mixing public and private programs. In Korea, the government runs the state-funded national pension system while various retirement funds are offered by private insurers. The OECD advises people to prepare pension programs to cover 70 percent to 80 percent of the income they earned during working years. Pensions in Korea make up about 50 percent of average earnings. Individual purchases of private pension plans in Korea are relatively low at 15.7 percent, compared with 25 percent in the United States and 30 percent in Germany.

About 30 percent of the working population is not subscribed to any private pension plan. Only 5.7 percent among people in their 60s own private plans. Countries like Sweden and Finland that have experienced the aging of their population before us have reformed their public pension systems in order to make them sustainable. At the same time, they tried to encourage private pension schemes to guarantee a stable income for seniors. We should make similar preparations.

We normally work for about 25 years and must prepare for about 30 post-retirement years. People have to start contributing early to enjoy the benefits of pension programs. It would be too late if they start contributing as they approach the retirement age. Young people should pay attention to how they will live tomorrow as well as today.

The government proposed measures to encourage marketing of private pension schemes to strengthen the financial sector during an age when people can live up to 100. As overseas cases show, individuals as well as the government must work to prepare for a comfortable old age. In the current demographic transition, individuals will become more central in planning for the future. People must buy private pension programs not just for tax purposes but also for their future security.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, March 11, Page B11

*The author is the chairman and CEO of the Korea Insurance Development Institute.

By Kim Soo-bong


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