Correcting the Elderly Poverty Rate Is the Key to Unlocking Welfare Solutions

[Seoul Economic Daily · Op-Ed · February 10, 2019]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA)

Interest in welfare policies for older people has been increasing following remarks by the Minister of Health and Welfare on the need to raise the age threshold for older people. To properly discuss the age threshold, I believe a precise understanding of the statistical figures we commonly encounter must come first. The elderly poverty rate of 46.7% (as of 2016) that we often see in Korea is the highest among member countries of the Organisation for Economic Co-operation and Development (OECD). In a reality where there is a higher preference for real assets over financial assets, the elderly poverty rate may appear higher than it actually is because it is calculated based only on disposable income. This is why research results showing that the elderly poverty rate drops significantly to around 21% when housing stability is considered in addition to disposable income are gaining attention ("A Study on the Calculation of Various Elderly Poverty Indicators," Korea Institute for Health and Social Affairs (KIHASA)).

Other factors that drive up the poverty rate besides real assets should also be examined. The elderly poverty rate is the proportion of older people within the older population who fall below 50% of the median income (the middle income when listed in order of income) based on actual usable income after taxes, etc. (disposable income). This does not mean that the poverty rate of the older population is high on average among the entire citizenry, but rather that there is a high proportion of older people who are relatively poor within the group of those aged 65 and older. This suggests that income inequality or income polarization among older people may be severe.

The "2017 Survey on the Living Conditions of the Elderly" clearly demonstrates this possibility. Among all households aged 65 and older, the annual income of the bottom 20% is 7.56 million won. On the other hand, the income of the top 20% of households is 60.46 million won (based on 2016 income), which is eight times higher than that of the bottom group. However, public transfer income paid from taxes and social insurance is exacerbating the situation. This is because while the annual public transfer income paid to the bottom 20% is 3.96 million won, 11.49 million won—three times as much—is paid to the top 20%. Because social security benefits are concentrated in groups with far more earned income and property income, the elderly poverty rate remains high despite the fact that welfare spending is increasing most rapidly among OECD member countries.

That is why there is a greater need for public deliberation on the fact that Korea is the country with the lowest income redistribution effect through public transfer income among OECD member countries. According to Statistics Korea's "2015 Results of the Development of National Transfer Accounts," annual wage income per person peaks at 40 years of age at 27.59 million won (as of 2015). On the other hand, the annual total income of the top 40% of households aged 65 and older exceeds 30.02 million won (as of 2016). This could serve as a basis for the need for a comprehensive review of welfare policies for older people.

Setting aside relative poverty, these indicators remind us of the need to reset the priorities of welfare policies so that older people can at least escape absolute poverty. If the current elderly poverty indicators and the Basic Pension payment method are maintained, it is projected that the elderly poverty rate will remain at three times the OECD average even if the annual required resources for the Basic Pension, which were 11.9 trillion won in 2018, are increased to 28.6 trillion won by 2027. Citing the low effect of the tax-financed Basic Pension in alleviating elderly poverty, the OECD has already recommended policy changes to our Basic Pension several times. It is recommending that the Basic Pension be operated with a focus on low-income older people so that the vicious cycle where income polarization during working years leads to income polarization in old age can be broken.

The recently intensifying debate over raising the age threshold for older people must also be approached in this context to find a solution. It is time to hurry toward a great transition in welfare policy so that more benefits can go to low-income, vulnerable older people, at least within the welfare systems operated with the public's taxes. If the debate over raising the age threshold for older people is viewed as a starting point for designing welfare policies that are better targeted by income level and welfare system, it could be a blessing in disguise. We must hurry our efforts to reconstruct our elderly poverty indicators—which even experts from international organizations such as the UN find incomprehensible—to fit reality. It is time for an open and honest social dialogue on what problems exist in the elderly poverty indicators and what efforts are needed to properly communicate this reality.

Source: Seoul Economic Daily (original article)