Dr. Jun Kwang-woo Distinguished Professor, Yonsei University

Former Chairman & CEO, National Pension Service (NPS) Former Chairman, Financial Services Commission (FSC)

Former Ambassador for International Finance, Korea

Ageing in Korea Trends, Issues and

Policy Implications

1

CONTENTS

Opening Remarks

3 Health and Long-Term Care

Population Ageing in Korea 1

2 Public Pensions

4 Quality of Life and Employment

Closing Remarks

Policy Implications 5

1

Population

Ageing

4.53

2.82

1.57 1.47

1.23

58.67

61.78

67.29 72.25

77.20

65.57

70.04

75.51

79.60

84.07

55

60

65

70

75

80

85

90

0.0

1.0

2.0

3.0

4.0

5.0

1970 1980 1990 2000 2010

Lif

e E

xpecta

ncy a

t Bir

th

Tota

l Fert

ilit

y R

ate

Year

Female LE

Male LE

TFR

Demographic Change : Fertility and Life Expectancy Slide No. 1

(Source: Statistics Korea , 2011)

Population Projection, 2010~2060

52,160

43,959

54,783

49,410

34,469

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

po

pu

lati

on

(1

,00

0s

)

year (Source: Statistics Korea , 2011)

Medium

Low

High

Pop. estimates

Slide No. 2

Population Composition by Age, 1960-2060

42.3 42.5 34.0

25.6 21.1 16.1 13.2 12.6 11.2 9.9 10.2

54.8 54.4 62.2

69.3 71.7 72.8 71.1

63.1 56.5 52.7 49.7

2.9 3.1 3.8 5.1 7.2 11.0 15.7 24.3

32.3 37.4 40.1

0%

20%

40%

60%

80%

100%

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

year

0-14 15-64 65+

(Source: Statistics Korea 2011; medium variant)

variant)

Slide No. 3

Youth and Old-Age Dependency Ratio, 1960-2060

77.3

78.2

54.6

36.9

29.4

18.6 20.0 19.8 18.9 20.5 5.3 5.7 6.1 7.4 10.1

22.1

38.6

57.2

71.0

80.6

0

20

40

60

80

100

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

de

pe

nd

en

ts p

er

10

0 w

ork

ing

a

ge

po

p.

year

youth old-age

(Source: Statistics Korea, 2011; medium variant)

Slide No. 4

Total Dependency Ratio: International Comparison

37.3 38.2

56.4 55.1 53.3 51.4 52.5 46.9

54.2 51.2 46.9 44.0 49.6 48.0

101.0

75.7

95.7

51.7

77.3 73.3

85.6 86.8

74.0 84.5 87.2

73.7 68.1

73.5

0

20

40

60

80

100

120

dependents

per

100 w

ork

ing

age p

op.

2010 2060

(Source: UN, 2010 & Statistics Korea, 2011)

Slide No. 5

2

Public Pension

Structure of Public Pension Slide No. 6

Brief History of the National Pension - Expansion of Coverage

1987 Legislation of the National Pension Act

1988 Enforcement of the scheme

(workplaces with 10 or more full-time

workers)

1992 Expanded to workplaces

with 5 or more full-time workers

1995 Expanded to rural areas

1999 Expanded to urban areas

Slide No. 7

Coverage of Public Pension

Working Age 15-64 Labor Force 15-64

Total insured persons 57.0% 90.6%

Active contributors 40.4% 64.2%

Working Age 18-59 Labor Force 18-59

Total insured persons 64.7% 95.7%

Active contributors 45.8% 67.7%

Sources: IMF OAP/FAD Conference (Seong Sook Kim, 2013)

Slide No. 8

Recipients of Public Pension Benefits

Total

population of

aged 65 and over

Basic Old Age

Pension (BOAP)

Recipients

Recipients of

the National Pension (NP) and/or

Public Occupational Pensions (POP)

Non-recipients

5,701

(100%)

3,796 (66.6%) 1,799 (31.6%)

1,013

(17.8%)

only BOAP 2,889 (50.7%), NP & BOAP 907 (15.9%),

only NP or only POP 892 (15.7%)

<Total = 4,688 (82.2%)>

(unit : thousand persons, %)

Sources: IMF OAP/FAD Conference (Seong Sook Kim, 2013)

Slide No. 9

Overview of NP & BOAP

National Pension (NP) Basic Old Age Pension (BOAP)

Introduction 1988 2008

Coverage All employees and self-employed

aged 18-59 70% of the elderly aged 65 +

Type of program Social insurance

(DB plan)

Social pension

(means-tested, tax financed)

Pensionable

Age

61

(gradually rising to 65 by 2033) 65+

Source of funds 9% of gross monthly earnings

(4.5% employee, 4.5% employer)

70% from central government & 30%

from local government

Minimum years

of coverage 10 years of contribution No contribution required

Old-age benefits

40% (2028)

(40-year contribution record,

average earner)

5% of the average monthly income

of NP participants

Slide No. 10

Adequacy and Sustainability

Inadequacy of old-age income security Low coverage of public pension : 57.0% (Working Age 15-64)

Sustainability of the National Pension

According to the 2013 financial review, the National Pension fund will

be depleted by 2060

Low benefits

NP old-age benefit : 15.4% of the average monthly income (NP)

BOAP old-age benefit : 5.0% of the average monthly income (NP)

Slide No. 11

3

Health

Prevalence of Chronic Diseases and Disability

• Most of elderly Koreans are suffering from chronic disease and

disability

- Chronic diseases : 88.5%

- Daily activity limitations : 37.8%

- Need for help in daily living : 17.8%

(Korean National Health & Nutrition Examination Survey, 2005)

(National survey of the actual living condition of the elderly, 2010)

Slide No. 12

Facing the Challenges of Dementia

(Source: Ministry of Health & Welfare)

• The elderly with dementia are about 420 thousand in 2008

- the entire of medical cost on dementia is 503 billion won(2008)

The number of the elderly with dementia

(Unit : 1,000 persons)

2008 2009 2010 2011

Over 65 year old 5,016 5,193 5,357 7,701

Over 65 year old

(dementia) 421 445 469 750

Rate of dementia (%) 8.4 8.6 8.8 9.7

Slide No. 13

Health Care Expenditure for the Elderly

• Between 2000 and 2009, health care expenses in the National

Health Insurance have grown by 12.8%

The elderly are expected to consume 65.4% of total health

care expenses in the National Health Insurance in 2030

(Source: NHIS, 2008)

37.9 45.6

56.1

65.4

0

20

40

60

80

2015 2020 2025 2030%

Slide No. 14

4

Long-Term Care

Long-Term Care Insurance : Background

• More and More elderly Koreans

are living longer and entering

the age when they need care

• With smaller families and

increased female labor force

participation, proving long-

term care for the elderly

becomes more and more

urgent in Korea

July 2008 Introduction of the Long-Term Care Insurance

5.8

6.5

7.2

8.6

5

6

7

8

9

10

2010 2015 2020 2030

Projections : long-term care beneficiaries

%

Slide No. 15

Long-Term Care Insurance : Beneficiaries

National Health Insurance ( + medical aid)

2012.6

Over aged 65 (A) 5,540,000

Eligible for LTC (B) 327,766

A/B 5.9%

(unit: person)

(source: NHIS statistical yearbook,2012)

Beneficiaries of Long-term care insurance

147

269

312 320 328

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012

The Number of Beneficiaries

(Unit: 1,000 persons)

Slide No. 16

Long-Term Care Insurance : Benefits and Financing Slide No. 17

Facility benefits

In-home benefits

Special Cash

benefits

Benefits Financing

Long-term care contribution

Government Support

6.55% (2012) of the National

Health Insurance contribution

rate

20% of the cost of LTC benefits

5

Family & Quality

of Life

Projected Households : aged 65 and over

17.78

40.54

0

10

20

30

40

50

2010 2035

Elderly-headed Households : 2010 and 2035

%

• The percent of elderly-headed households is

expected to increase dramatically by 2035

Slide No. 18

Type of Households : Aged 65 and Over

• Elderly Koreans are more likely to live alone and the proportion

of single person households is expected to increase even further

33.6

9.6

34.2

22.5

32.3

8.8

38.0

20.9

0

10

20

30

40

50

couple couple withchildren

single-person other

Elderly Households by Type: 2010 and 2035

2010 2035%

Slide No. 19

Economic Hardship of the Elderly

AUT CAN

DNK

FIN

FRA DEU

GRC

IRL

ITA

JPN

LUX

MEX

NLD NZL

NOR

ESP

SWE

TUR

UKD

USA

CZE

AUS

HUN

CHE

KOR

ISL SVK

PRT

POL

BEL

0

5

10

15

20

25

30

35

40

45

50

0 2 4 6 8 10 12 14 16 18 20

Old-age poverty rate (%)

Population poverty rate (%)

Income poverty rates by age

Old less

likely to be

poor

Old more

likely to be

poor

• Currently, elderly Koreans experience the highest poverty rate

among OECD countries

(Source: OECD Income Distribution database; see OECD (2008), Growing Unequal?)

Slide No. 20

Social Integration

(per 100,000 population)

(source : OECD, Society at a Glance – Asia/Pacific Edition 2011 )

Slide No. 21

9 11 13 12 18

27

18 22

72

0

10

20

30

40

50

60

70

80

Asia/Pacific OECD Korea, Rep

Suicide rates by age 15-34 35-64 65+

• Economic hardship

• Erosion of the

traditional family

support base

Elderly Koreans are weakly integrated into the society

6

Employment

Ageing Workforce

• 35.6% are over 50 (2013.6)

• 60+ group : 9.8% (2003.6) ▶ 13.6% (2013.6)

(Source: Statistics Korea)

Slide No. 22

24.0

9.8

35.6

13.6

0

5

10

15

20

25

30

35

40

50+/total 60+/total

Labor force by age group

2003.6 2013.6

11.6%p

3.8%p

Labor Force Participation Rate (65+)

• Labor force participation rate of elderly Koreans stands at 29.4%,

the second highest level among OECD countries in 2010

(Source: http://stats.oecd.org)

Slide No. 23

29.4

17.4

4.0 5.9

12.1

21.8

8.6

0

5

10

15

20

25

30

35

Korea US Germany Nertherlands Sweden Japan UK

Employment Status of the Elderly Slide No. 24

• Despite their higher LFPR, elderly Koreans are facing poor

employment conditions and work insecurity

16.9 33.6

45.2

32.6

35.2

42.0 50.5

31.2

12.8

0

20

40

60

80

100

age 15-49 age 50-59 age 60+

Old worker’s employment status in 2010

Regular Employees

Irregular employees

Self-employed

• Irregular employees include temporary, daily and unpaid family workers

(Source: MOL,2012)

7

Policy

Implications

Policy Directions for Population Ageing

• Build a multi-pillar income security system for retirement

• Establish a comprehensive and sustainable health care system

• Provide employment opportunities for older workers

• Support active and successful ageing

Slide No. 25

Policy Recommendations

• Improve adequacy and long-term financial sustainability of the

National Pension

• Expansion of Basic Old Age Pension

• Promote private pensions as a complement to public pension

Build a multi-pillar income security system for retirement

• Reinforce regular checkups and build a preventive health care

system

• Promote chronic disease care programs and expand Long-Term Care

insurance coverage

• Stabilize medical cost and improve financial soundness

Establish a comprehensive and sustainable health care system

Slide No. 26

Policy Recommendations (continued)

• Create new job opportunities for the elderly

• Promote senior-friendly work environment

• Provide job training programs and support older workers to start

their own business

Provide employment opportunities for older workers

• Strengthen safety net programs and support vulnerable seniors and

their families

• Promote social and leisure activities for the elderly

• Develop and support lifelong learning programs

Support active and successful ageing

Slide No. 27

THANK YOU