"46% of Elderly Households Face Income Shortage... Housing Pension System Needs Overhaul"

Nearly half of elderly households in South Korea have no income to cover minimum living expenses after retirement. Only 35% of households could replace their current consumption solely with financial assets such as savings and deposits. In response to the accelerating super-aged society, there are urgent calls to improve the housing pension system, which currently has a participation rate of only around 1%, and to enhance the utilization of private pensions, among other institutional reforms.

According to the 'Capital Market Focus' published by the Korea Capital Market Institute on the 4th, based on the 2021 National Survey of Tax and Benefit Panel (NaSTaB), about 46% of elderly households had total household income below the minimum living expenses they reported. When converting currently held real estate or financial assets into pensions, 64% and 35% of elderly households, respectively, could maintain their current consumption levels.

Kim Min-ki, a research fellow at the Capital Market Research Office who authored the report, pointed out, "Only one-third of elderly households can maintain future consumption with financial assets alone," adding, "Elderly households in South Korea lack useful sources of retirement income such as pensions."

This supports concerns that demographic changes, including super-aging, will become risk factors for the financial market and the overall economy in the future. More than 60% of the assets held by elderly households are physical assets such as real estate, which are relatively difficult to dispose of or utilize. A significant portion of financial assets consists of savings and deposits. The utilization of financial investment products such as stocks and funds or pension assets was extremely low.

Researcher Kim explained, "The high labor market participation rate among the elderly in South Korea alongside a high poverty rate suggests that their sources of retirement income are insufficient," adding, "Effectively converting physical and housing assets held by elderly households into pensions can help maintain a certain level of retirement consumption." When converting total assets, including real estate, into pensions, about 74% of elderly households could maintain their current consumption levels.

Accordingly, there are urgent calls for policy authorities to improve the institutional environment, including ▲improving and revitalizing the housing pension system, ▲enhancing the utilization of financial assets by elderly households, and ▲encouraging the accumulation of retirement assets among younger and middle-aged generations. As of December 2024, South Korea has entered a super-aged society where the population aged 65 and over exceeds 20% of the total population.

First, the housing pension system, which allows owners aged 55 and older to use their home as collateral while living in it and receive monthly living expenses, is evaluated as a means to diversify insufficient retirement income for elderly households. However, the current participation rate is very low at around 1%. Researcher Kim pointed out, "The causes of low participation should be carefully analyzed to resolve inconveniences for subscribers, while appropriate liquidity of housing pensions should be ensured to diversify risks and enhance the system's sustainability."

Along with this, since the financial assets of the elderly are still concentrated in savings and deposits, there were also calls to increase the utilization of medium- to low-risk financial investment products suitable for them and to improve service accessibility through customized financial education. At the same time, the need to support stable management of financial assets through diversification of immediate annuity products was raised.

Finally, Researcher Kim emphasized, "The roles of retirement pensions and private pensions are important to actively encourage the accumulation of retirement assets among the current younger and middle-aged generations," adding, "To sufficiently secure future retirement income for the elderly, tax incentives for contributions to private pensions should be further expanded." The low utilization of private pensions has long been pointed out as a major factor for the insufficient permanent income of elderly households in South Korea. He suggested, "The institutional environment should be improved so that workers' retirement assets can be effectively managed through enhancing the returns of accumulated retirement pensions and improving the default investment management system."