The Sorrowful '6080' Generation and Korea's Pension Politics

[Seoul Sinmun · Open World · August 9, 2012]

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

The poverty problem of the age group from 60 to 80 (6080) is drawing renewed attention. This is because the monthly income of this generation, who spent most of their lives supporting their children, is only 700,000 won, which is not much different from the lives of the low-income class. The high relative poverty rate of older people aged 65 and over, who live on an income that is only 67% of the average income of all age groups, is also a point that is difficult to overlook in terms of social integration.

In this situation, an Organisation for Economic Co-operation and Development (OECD) report ignited the debate over pensions to alleviate elderly poverty. Since the OECD's 2002 policy recommendation that it is necessary to pay a Basic Pension to all older people aged 65 and over to solve the elderly poverty problem, the Basic Pension scheme has stood at the center of controversy. Unlike the National Pension, which requires contributions for more than 10 years, a tax-financed Basic Pension can solve the elderly poverty problem at once because it pays pensions unconditionally to all older people aged 65 and over.

Despite these advantages and the OECD's recommendation to introduce the system, the government, which must be responsible for the operation of the system, showed a critical attitude toward the introduction of the Basic Pension. This is because it feared that if the Basic Pension were introduced in a situation where the population aged 65 and over is projected to account for about 40% of the total population by 2040, government spending to fund the pensions would surge.

The Basic Old-Age Pension scheme introduced in 2008 currently pays a monthly pension of 94,600 won to 70% of older people aged 65 and over. The pension amount is insufficient to solve the elderly poverty problem, and because an ambiguous system was introduced during the process of political compromise, the nature of the system is vague, leading to constant calls for an overhaul of the system. As directions for the overhaul, positions are sharply conflicting between those who argue for increasing the number of recipients to pay more pensions than now to all older people, and those who argue that, considering the limited government finances, the number of recipients should be gradually reduced while increasing pensions for vulnerable older people who need more help. This is the background why the possibility is increasing that each party will tinker with it as a presidential election pledge card to secure the votes of older people in a situation where social pressure to alleviate elderly poverty is increasing.

In the West, the term "pension politics" related to discussions on overhauling pension schemes has long been commonplace. This is because the choice of which pension policy to employ has overturned administrations and, furthermore, determined the fate of nations. When a judgment is difficult to make, asking for direction through foreign examples seems to be a good method. Sweden, Norway, and Finland, referred to as synonyms for welfare states, after long controversy and in order to cope with aging, overhauled their pension schemes by abandoning the Basic Pension paid to all older people and instead focusing government finances on vulnerable older populations. On the other hand, Japan, a nation with a large older population that served as our benchmark, is causing concern among many experts by proposing an overhaul plan that actually increases government spending.

Then, what is the correct direction for pension politics in our country? The OECD, which has been at the center of the overhaul controversy in Korea for the past 10 years, happened to weigh in on the direction of our pension politics. This May, the OECD withdrew the recommendation it had consistently maintained for the past decade and presented a new recommendation to provide concentrated support to vulnerable older people who need more benefits, instead of the current Basic Old-Age Pension, which has low policy effectiveness relative to the cost of input. It suggests that while a quasi-universal system may be maintained for current older people who failed to properly prepare for old age, for the generation that will become older people in the future, selection and concentration are needed to focus support on vulnerable groups.

The OECD's recommendation is similar to Germany's pension reform. In the 1990s, while faltering, Germany was able to maintain the competitiveness of its manufacturing industry and ensure the sustainability of its social security schemes thanks to a prominent politician named Gerhard Schröder, who put "Agenda 2010" into practice. Like Chancellor Schröder, who stepped down from the chancellorship after losing an election following the implementation of the reform plan, we need politicians who can state with conviction a desirable policy direction from a long-term perspective even if they suffer immediate losses, and a public that can provide the foundation for such politicians to grow into giants; is this not exactly the pension politics we desperately need now?

Source: Seoul Sinmun (original article)