Are Older People in Our Country Really That Poor?

[Hankook Ilbo · Opening the Morning · April 21, 2022]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA) and former President of the Korean Pension Association

Foreign experts find the high elderly poverty rate in our country puzzling. This happened during a social safety net seminar hosted by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) held in Songdo in April 2014. Srinivas Tata, Director of the Social Security Division at ESCAP, asked me, as the project manager, "What is the homeownership rate among older people in Korea?" When I replied, "I do not know exactly, but it is likely around 70%," he said, "In that case, Korea's high elderly poverty rate is certainly wrong." He said he asked because he could not understand why a wealthy country like Korea had such a high elderly poverty rate.

There are two types of poverty rates. The relative poverty rate, which considers someone to be in poverty if they fall below 50% of the median income, and the absolute poverty rate, which is based on the minimum required to maintain a basic living standard. The OECD primarily uses the relative poverty rate, while countries in the Asia-Pacific region with lower economic levels frequently use the absolute poverty rate. Since we are an OECD member, we must follow OECD standards. The problem is our reality, where the proportion of real estate among assets is very high for both middle-aged and older people. Because the OECD calculates the poverty rate based only on disposable income, those with significant real estate assets are classified as poor older people if their disposable income is low.

According to my research, the elderly poverty rate drops significantly to 21% when real estate and other assets are included. Data from Statistics Korea is similar. The property income of all older person groups, excluding the first quintile with the lowest income, is higher than that of all households (excluding the wealthiest fifth quintile). In particular, older households in the fourth and fifth income quintiles have overwhelmingly more property income compared to all households. Considering that these people make up 40% of all older people, it becomes clear how much the Basic Pension—which is unconditionally paid from taxes to 70% of older people aged 65 and over—is a policy based on populism.

Based on net assets, the older population is also far wealthier than all households. However, there is a point that deserves attention: income inequality among older people. Older people in the bottom 20% of income are an extremely poor group. Even when including assets, they are the poorest group among all households.

This is clearly revealed when comparing the Gini coefficients for older people by country (as of 2018). Compared to Germany at 0.269 and Canada at 0.286, ours is very high at 0.406. The closer the Gini coefficient is to 1 from 0, the higher the income inequality. This contrasts with the fact that there is no significant difference based on the total population. That is how serious income inequality is among the older population in our country. The decile ratio based on disposable income, where a larger number indicates greater inequality, shows a similar trend. Compared to Germany at 3.1 and Finland at 2.7, ours is overwhelmingly high at 6.5.

Despite the severity of the situation, there have been no efforts to correct it. About 15 years ago, in the main conference room of the Ministry of Health and Welfare in Gwacheon, when Edward Whitehouse, Head of Pension Policy at the OECD Social Policy Department, emphasized our high elderly poverty rate, I strongly refuted him as a discussant; nevertheless, the claim that the elderly poverty rate is high has been repeated like a parrot. By showing older people collecting waste paper on TV screens, they mislead the public into thinking all older people live by collecting waste paper. This serves as the basis for arguments to increase the Basic Pension during presidential elections. All this happens without any effort to improve statistical errors or the trap of averages.

Finally, some welcome news has arrived. It seems that "comprehensive pension statistics," which had been difficult to establish due to disagreements between ministries, will be created. This is because accurate income identification for older people will become possible, enabling the establishment of proper welfare policies for older people. This is why Commissioner Ryu Geun-kwan and an official at Statistics Korea deserve high praise. However, it is regrettable that the results will not be announced until next October. By around next October, there is a high possibility that discussions on pension reform will be pushed to the background due to the general election and other factors.

Source: Hankook Ilbo (original article)