Time to think about pensions
Korea’s elderly population is rapidly growing. The rate of growth is the fastest among OECD member countries, twice the OECD average. Ten years from now in 2026, pensioners will make up 20 percent of the total population. The elderly poverty rate is also the highest among OECD members.
The National Assembly and government have long been working to expand long-term savings such as pensions. Most notably, tax benefits were offered on long-term savings insurance. Individuals make the choice to buy long-term savings insurance products, so tax exemption is a crucial factor.
But the latest National Assembly and government move seems to be going against the trend. The government and the National Assembly are working on a revision of the tax law to reduce the tax exemption limit on long-term savings insurance from 200 million won ($167,000) to 100 million won. The argument is that the policyholders who can afford to have hundreds of millions of won in savings insurance for extended period are not average citizens.
It is understandable that the direction of the revision is to cut tax benefits for high income earners. But it is hard to agree that those who wish to save 100 million won to draw a pension after retirement are considered high income earners. With longer life expectancy, people are saving more to prepare for retirement, so 100 million won in long-term savings insurance is not a convincing measure for the high-income group.
In the past, Koreans had not been interested in preparing for retirement sufficiently. To help with life after retirement, the government established the basic public pension, but the public pension is not enough to support pensioners after retirement. The government projects that in 2040, 24 years from now, 100 trillion won will be needed to provide a basic pension. It will be a tremendous burden on government finance, considering the size of Korea’s economy and budget.
We need to build a higher seawall to prepare for the roaring currents of the aging population. The government should not commit the mistake of knocking down the seawall to expand immediate tax revenue.