Technology pension
Can one country survive when its elderly outnumber its young adults? A century ago, South Korea had a greatly high birth rate and they even conducted a campaign to make it lower. However, nowadays South Korea is one of the fastest-aging societies in the world, due to its extremely low birth rate and rapidly increasing life expectancy. The birth rates continued to decrease since the 1980s, disrupting people’s belief that it would eventually stabilize, and also the number of South Koreans aged 70 and over outnumbered those in their 20s in 2023. December 2024, South Korea officially became a “super-aged” society, where more than 20 percent of the population is aged 65 years or older. This situation is considered so critical and severe that even in public schools, students are being taught about the aging society and warned about the challenges it will bring in their future. These demographic changes are putting pressure on society as a whole, particularly on the pension system, which is crucial for ensuring financial security among the elderly.
This issue is particularly significant because it represents one of the most urgent challenges Korea is facing today and has major implications for the economic stability of future generations. Korea utilizes the state-run pension system through the National Pension Service, and there are retirement pensions and personal pensions to supplement it. As the elderly population increases, questions about the financial sustainability of the pension system become increasingly urgent, posing significant challenges for society, the economy, and the well-being of future generations alike.
The number of people paying pension declines, while the number of recipients is increasing rapidly. As a result, the financial stability of the pension system is hugely threatened. This is largely driven by demographic changes. Due to the barrier of high cost living and financial strain, South Korea’s birth rate is 0.72 in 2023, which is much lower numerical value than other Asian countries. Fallen birth rates reduce the size of the working population, while longer life expectancy increases the number of retirees.
In South Korea, the total fertility rate was estimated 0.7 per woman in 2023, which was the lowest figure of OECD countries. However, the average life expectancy at birth in 2023 came to 83.5 years. On March 25, South Korea’s parliament passed a bill to reform the country’s $830 billion pension fund and delay the depletion of the state fund that has been on track to run out by the mid-2050s. This reform happened for the first time in 18 years. While it cannot resolve the underlying long-term imbalance, this reform represents an important and preliminary step toward ensuring the pension system’s future sustainability and stability and solving the most pressing issues.
To solve this prolonged issue, more structural reform is needed. The immediate population change cannot be reduced, so the retirement age should be raised. We should increase the official retirement age up to 65 and mandatory retirement policies should be abolished to reduce the pressure on the retirement of the elderly and increase job security. In particular, the government should support the labor market participation of elderly. By providing the elderly with a flexible way of working and reducing their physical strain, they can be balanced with their work. Without any decisive action, this could lead older people to struggle with economic problems.
To further support this, the government must provide retraining and upskilling programs to help the elderly adapt to new jobs. Job mentoring programs between young and old people can reduce intergenerational conflicts and induce mutual cooperation. In addition, we need to increase the transparency and build reliability accurately in the operation of pension funds through reporting the situation to the public. Financial support, including subsidies for fertility treatment and public childcare, is needed to strengthen the fertility rate.
And South Korea could learn from other countries that have already implemented pensions and employment reforms for elderly. In Japan, which is one of the fastest aging countries in the world like Korea, companies enforced flexible pension payment reforms by introducing a policy to extend the retirement age, which legally guarantees the retirement of senior citizens to 65 years old and some to 70 years old, and a macroeconomic slide system that increases premium rates in stages, and automatically adjusts pay levels. In addition to state pensions, Germany enforced a multi-layered pension system policy by diversifying into corporate pensions and personal pensions.
The fundamental challenge of South Korea’s pension system is the rapidly aging population and low birth rates. While recent reforms are a step in the right direction, comprehensive and structural changes are essential to address the root causes of this financial crisis. South Korea must put efforts into building a more resilient and stable pension system. Without decisive and coordinated action, no one can guarantee the sustainability of the pension system.
The proactive policy measures and societal commitment are crucial to ensure a secure and dignified future. Ultimately, this issue requires solidarity between generations and the will of society to share responsibilities fairly. Not only South Korea is facing this crisis. Many developing countries in Asia like Vietnam, India, Thailand are already grappling with similar demographic pressures, and they are beginning to see the early signs of this trend as well. Drawing on international experiences while addressing Korea’s distinct demographic challenges will be essential in shaping a pension system that can last for decades to come. Developing original strategies and adapting proven global approaches are both necessary steps for Korean society to ensure fairness for the future generations.
By: Uibin Lee
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