In South Korea and Japan, the wealth gap between those over 65 and the rest of the population continues to widen.
The numbers leave little to the imagination. South Korea, a country renowned for being a global economic power, boasts a very dismal record: that of having the second highest income poverty rate among elderly s in the OECD.
Until a year ago it was in first place while now Seoul is behind only (and small) Estonia. Numbers in hand, 40% of South Koreans over 65 live below the poverty line, equal to half of the national median income or around 22 thousand dollars (without taking into account patrimonial wealth ). In Japan this rate is 20%. The OECD average? By 14%.
Even in China and Taiwan the wealth gap between the over 65s and the rest of the population is widening, creating quite a few socio-economic headaches for governments already busy dealing with consequences of the demographic winter (decrease in births).
In general, the exponential growth in the number of elderly s within the aforementioned Asian countries, combined with the decrease in youngs, the evolution of the labor market and the rigidity of the systems pensions, are factors that contribute to fueling a problem - the wealth gap within the population - which is destined to get increasingly worse.
Be careful though, because if today this thorny issue is in the hands of Asian leaders, in a few years it could occupy the top of the agendas of European decision-makers. East Asia offers an example of what works and what doesn’t. It is therefore worth turning the spotlight on the dossier.
Poor elderly people: what happens in South Korea and Japan
How do the pension systems of Japan and South Korea work? The Japanese Pension System dates back to 1961 and offers broad coverage. The South Korean one, by contrast, was introduced in 1988 and achieved almost universal coverage only in 1999.
Japan, as explained in detail by the Economist, has a pension system with two levels: the first, available to all, with lump sum payments and a final payment proportional to the years of contributions; the second intended for those who work full time. Workers’ contributions, based on their wages, are matched by the employer. The South Korean system is similar: all workers except the top 30% of earners are entitled to the basic old-age pension. Pension which, in 2022, amounted to 307,500 won (220 dollars) per month (this is why well-employed workers often also have a private pension).
The argument is simple: those who have a long and regular working career behind them will be able to retire with a decent paycheck, while freelances, who are less likely to pay constant contributions, risk a lot. As if that wasn’t enough, the basic pensions are negligible in proportion to the costs of the two companies. In Japan, for example, with 40 years of contributions, you get a pension of around 410 dollars a month. In South Korea, however, it has been calculated that only 10% of workers born in 1970 will retire with approximately 34 years of contributions.
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Solutions and risks
The increase in life expectancy has extended working life. Result: 49% of South Koreans aged between 65 and 69 still work, as do 50% of Japanese. In Japan, almost 40% of companies usually keep employees beyond the age of 70, while each municipality manages a “Silver Work” center where elderly people can find employment.
The situation is more delicate in South Korea, where these people, at the end of their "regular" professional career; often find themselves working in low-paid and unattractive jobs. Then there are those who dedicate themselves to makeshift tasks. Like the pyejijupnun halmeoni , the grandmothers who collect cardboard, who drag carts full of used boxes to resell for a pittance in exchange.
Considering that both Tokyo and Seoul have to deal with the continued aging of their societies, the number of poor elderly people is expected to increase. South Korea’s pension fund has grown to become the third largest in the world (730 billion dollars) but this piggy bank could dry up soon: when the baby boomers they will retire with an entire working life of contributions behind them to "cash in", and when too few workers will replace them. The government estimates that the fund will stop growing by 2040 and will be empty by 2055.
Raising the retirement age may not be enough. The demographic winter continues to be an insurmountable obstacle. The economic well-being of the elderly, in critical contexts such as those described, can hardly be guaranteed without a significant increase in public income transfers, wrote Le Monde. Europe, and the West more generally, would do well to take notes.
Original article published on Money.it Italy 2024-05-31 06:58:00. Original title: Il problema della old-age poverty travolge l’Asia (e spaventa l’Europa)
