South Korea’s unconditional cash transfer program supports low- and mid-income people 65+

Since 2008, the tax-based basic pension program in the Republic of Korea (South Korea) has provided unconditional monthly cash support to people aged 65 years and older. Prior to this policy, only people with very low income (under 30 percent of median household income) and no family to provide for them received support. This program was designed to address high rates of elderly poverty by expanding the coverage of cash transfers. In 2022, over six million people, approximately 70 percent of people aged 65 and over, received a basic pension amount of around KRW 300,000 (USD 233) a month.¹

The national government sets the eligibility threshold every year so that the program covers the poorer 70 percent of people 65 years and older in South Korea. Eligibility is based on the person’s recognized income and property. The government checks eligibility through its Social Security Information System, which contains integrated data on income and property.

Eligible individuals receive a certain amount of cash every month unconditionally, meaning they do not bear any responsibilities in return for the cash. It is generally given in addition to the national pension benefits, but for an individual with high national pension benefits (above 150 percent of basic pension), only a partial amount is given.

Implementation

Despite rapid economic growth, South Korea’s poverty rate of people 65 years of age and older remains high. In the mid-2000s, the rate of pension-age poverty amounted to 45 percent, while the OECD average was 13.3 percent.² This is partially due to the underdevelopment of the national pension system, leaving the elderly without regular income after retirement.

The program began in January 2008 by providing a monthly benefit of KRW 85,000 (USD 66) to the poorest 60 percent of people aged 70 years and older. In the same year, it was expanded to also cover people aged 65-69, and from 2009, it has covered the poorest 70 percent.³ In 2012, the presidential candidate from the Conservative party (who subsequently was elected) had promised to make it an universal program. However, the government ultimately decided in 2014 to keep it mean-tested, while doubling the benefit to KRW 200,000 (USD 155), to focus on closing the income gap among the elderly. From 2017 to 2022, the monthly benefit gradually increased to reach KRW 300,000 (USD 232).⁴

Cost

The program is tax-financed, with local governments bearing 40 to 90 percent of the costs depending on their elderly population rate and financial situation. In 2022, the cost amounted to over KRW 20 trillion (USD 16.2 million), taking up 0.9 percent of Korea’s GDP.⁵

Assessment

The program is widely accepted as being an important driver in decreasing the elderly poverty rate from 44.5 percent in 2014 to 38.9 percent in 2020.⁶ The income gap among the elderly has also continuously narrowed over the years: in 2014 the Gini coefficient for those above the age of 65 was 0.447, compared to 0.376 in 2020. Although basic pension is not the sole cause of this improvement, numerous researchers have confirmed its significance.⁷

The program has also enjoyed substantial public and political support. According to a survey conducted by the National Pension Research Institute in 2021, 89.3 percent of the 2,000 beneficiaries said that it had reduced their economic burdens.⁸ Respondents also felt less insecure (53.2 percent), more confident when facing others (34.7 percent), and stated they were able to enjoy more leisure time (27.7 percent)–all of which indicates improvements in quality of life.⁹

The program’s continuous expansion throughout the years, during which time the governing party has changed four times, shows its political sustainability. The current president has also promised a further increase in the benefit (to KRW 400,000 or USD 310). Almost 60 percent of the general public stands in favor of this proposal.¹⁰

While many scholars, noting the still high poverty rate, emphasize the importance of increasing basic pension, this is not without controversy. Some argue that an expansion in non-contributory, tax-based basic pension might lower people’s willingness to pay into the National Pension system, since people who had not paid national pension contributions would still receive significant cash transfers. This shows difficulties in reconciling the goal of social protection and securing enough finances for the welfare system.

Eligibility

In 2022, the monthly income thresholds for single and two-person households were KRW 1.8 million (USD 1,396) and KRW 2.88 million (USD 2,234), respectively.¹¹

Costs

When first adopted, the program cost KRW 2.2 trillion (USD 1.71 million). This growth can be contributed to increased monthly benefits and the number of beneficiaries (2.9 million in 2008¹² to 6.1 million in 2022).

Tags

• Asia & Pacific
• High-Income Country
• Income & Wealth
• Labor
• Low-Income Groups
• Older Adults
• Republic of Korea
• Social Protection