Coverage Gaps in Welfare, Elderly Poverty, and Intergenerational Conflict

[Seoul Sinmun · Open World · January 2, 2013]

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

The Basic Pension is striking among the presidential campaign promises related to welfare. The Saenuri Party stated that it would introduce the Basic Pension, which incorporates the current Basic Old-Age Pension into the framework of the National Pension and pays 200,000 won per month to all older people aged 65 and over. The fact that the Saenuri Party, which holds a position close to means-tested welfare, adopted the Basic Pension—a universal system—as a campaign promise is itself a point of interest. The reason the Saenuri Party maintains a stance of universal welfare specifically regarding old-age income security seems to be Korea's elderly poverty rate, the highest among the member countries of the Organisation for Economic Co-operation and Development (OECD). Because many older people, who were the driving force of industrialization, suffer from poverty, they exhibit the highest suicide rate among OECD nations, and it is likely that the party considered extraordinary measures necessary.

The fact that President-elect Park Geun-hye's first official schedule after the presidential election was to visit marginalized groups—specifically older people living in one-room shacks and suffering from poverty—carries significant implications for future state administration. The reason the President-elect presents the alleviation of coverage gaps in welfare as the top priority in welfare policy may also be with the preparation of measures for the large number of older people in poverty in mind. A universal Basic Pension system aimed at alleviating elderly poverty can be a very effective policy alternative. This is because it has the advantage of addressing the problem of old-age poverty all at once by paying a certain amount of pension to all older people regardless of their own contribution history. However, the reality will not be easy. If the Basic Pension is introduced, 13 trillion won will be required as early as next year, and 17 trillion won in 2017. Compared to the current Basic Old-Age Pension, an additional 8 trillion to 11 trillion won will be needed, making a sharp increase in the financial burden on the central and local governments inevitable.

Considering our current level of social security expenditure and the scale of national debt, it may be possible to secure funding even if it becomes a burden for a certain period after the system's introduction. Necessary funds could be raised through expanding the tax base via tax reform and bringing the underground economy into the light, or in extreme cases, by drafting deficit budgets. Considering the reality that we are aging the fastest in the world, securing the costs to maintain the system—which will increase over time—will not be easy. This is because, from an initial perspective, the required funding for the Basic Pension is projected to increase up to 4.5% of gross domestic product (GDP). In a situation where the surrounding environment is expected to be unfavorable due to low fertility, aging, and low growth, the increase in the burden on future generations could cause significant repercussions.

These days, when intergenerational conflict is already intensifying, would it be merely my own unfounded fear to worry that the introduction of a universal Basic Pension system might become a fuse for such conflict? The younger generation has considerable dissatisfaction. Compared to the era of industrialization, it is harder to find employment, and it is difficult to expect capital income resulting from the rise in housing prices during the high-growth period. Although the elderly poverty rate in our country is high, not all older people are poor. Among older people, there are many beneficiaries of the National Pension and special occupational pension schemes, such as the Government Employees Pension, as well as high-asset individuals. In this situation, the keyword that "the 880,000 won generation must support even wealthy older people" could become a fuse for already precarious intergenerational conflict. Therefore, a wise approach is needed—one that maximizes the intent of introducing the Basic Pension to alleviate poverty among the older generation while also considering the burden on future generations.

The Basic Pension became a political issue during the Roh Moo-hyun administration. The fact that it has still not been introduced seems to be because there are so many factors to consider. Considering various circumstances, an alternative is a differentiated increase in pension amounts: maintaining the current quasi-universal Basic Old-Age Pension system for older people aged 65 and over who were unable to properly prepare for old age during the rapid industrialization process, while paying more pension to vulnerable older people severely exposed to poverty (40–50% of all older people). Regarding the potential coverage gaps in pensions for the current working generation, it would be effective to approach this in a manner similar to "Durunuri Social Insurance," which was introduced in the second half of last year through the President-elect's will. It is desirable to induce the reduction of coverage gaps by having the state support the remaining contributions on the premise that vulnerable groups bear a portion of the contributions during their working period. If we seek alternatives that alleviate coverage gaps in welfare and elderly poverty while quieting the dissatisfaction of future generations, there is no reason why a solution cannot be found. Above all, Solomon's wisdom must be exercised so that the issue of introducing the Basic Pension does not become a fuse for intergenerational conflict, but rather a shortcut to achieving the goals of a welfare state.

Source: Seoul Sinmun (original article)