Basic pension burden could double by 2048: study

The share of public finances spent on the basic pension could nearly double by 2048 unless South Korea’s government narrows eligibility and overhauls the program, a study showed Sunday.

According to the study published in the Korea Journal of Public Finance, basic pension spending is projected to rise from 3.08 percent of government finances in 2026 to 6.07 percent in 2048 if the current eligibility criteria remain unchanged.

As a share of gross domestic product, spending on the basic pension is also expected to more than double from 0.79 percent to 1.70 percent over the same period, the study found.

Currently, people aged 65 or older and who fall within the bottom 70 percent of income distribution are eligible to receive about 340,000 won ($230) per month in basic pension benefits.

The study said the government should shift toward a differentiated payment system that provides greater support to low-income older adults, noting that about a quarter of current basic pension recipients live above the official poverty line.

“Providing basic pension to groups that do not need government support because they have sufficient income could undermine the efficient operation of public finances,” the study said.

The research noted that the Organization for Economic Cooperation and Development has also highlighted South Korea’s basic pension eligibility as too broad: the same amount is provided to beneficiaries regardless of income differences.

The study, led by Dongguk University economics professor Hong Woo-hyung and Gyeongsang National University economics professor Lee Sang-yeob, simulated the long-term impact of the basic pension system on public finances using population, economic growth and inflation projections from the Ministry of Data and Statistics.

The government said it has begun work on basic pension reform, with the goal of reflecting a concrete policy direction in next year’s budget proposal to be submitted to the National Assembly in September.

The study proposed three possible reform options.

The first would reduce the eligible income group by 1 percentage point each year, eventually limiting basic pension eligibility to the bottom 50 percent of older adults after 20 years. The study said this group roughly corresponds to those living below the official poverty line.

Under the proposal, benefits for the bottom 30 percent income group would be increased by 50 percent, while the current benefit level would be maintained for those between the bottom 30 and 40 percent. Benefits for those between the bottom 40 and 70 percent would be reduced.

The second option would provide the standard basic pension only to those earning 50 percent or less of the median income.

The third option would integrate the basic pension into the National Basic Livelihood Security System by creating a tentative “elderly livelihood benefit.” Under this model, the income threshold for eligible older adults would be expanded from 32 percent to 40 percent of the median income, increasing actual benefits for older adults already covered by the livelihood security system by an average of about 250,000 won.

The study found that the second option would be the most effective in reducing budgetary costs, while the first would minimize policy shock by gradually adjusting eligibility.

The third option, the researchers said, would allow for significant budget savings while concentrating income support on older households in absolute poverty.

“In the long term, the basic pension should be integrated into the National Basic Livelihood Security System, which addresses poverty more broadly, so that the problem of absolute poverty among older households can be handled within a single framework,” the study said.

Another possible direction for reform would be to raise the age threshold for senior benefits.

A separate report submitted by Hongik University’s Industry-Academic Cooperation Foundation to the Ministry of Economy and Finance found that raising the current senior age threshold of 65 could reduce basic pension spending by 200 trillion won to 600 trillion won.

A Gallup Korea survey conducted in April also found that 59 percent of respondents supported raising the standard age for seniors to 70.

seungku99@heraldcorp.com