🚨 How to Prepare for a Super-Aged Society: Basic Pension Reform and Reverse Mortgage Activation Plans
Today Korean Economic News | 2025.05.16
📌 Super-Aged Society Needs Basic Pension Reform and Reverse Mortgage Activation to Solve Elderly Poverty
💬 The Korea Development Institute (KDI) and the Bank of Korea have suggested reforms to the basic pension system and activation of home equity conversion mortgages to address elderly poverty and labor market issues as Korea enters a super-aged society. They also discussed policy directions to increase labor market participation among the "young elderly." Experts emphasized the need for a comprehensive approach that considers both income stability for the elderly and fiscal sustainability.
1️⃣ Easy Understanding
Korea is aging rapidly, and elderly poverty is a serious problem. Let's look at various policy solutions to address these issues.
In 2025, Korea has entered a "super-aged society" with over 20% of its population aged 65 or older. Korea is aging at the second-fastest rate in the world after Japan, making elderly poverty and retirement income security major social concerns.
The biggest problem is that Korea's elderly poverty rate is the highest among OECD countries. About 40% of Koreans aged 65 or older live in poverty, which is more than three times the OECD average of 13%. The situation is even worse for those over 80, with a poverty rate approaching 50%.
To improve this situation, KDI and the Bank of Korea have proposed two main policy directions. First is reforming the basic pension system. Currently, eligible seniors receive up to 470,000 won per month, but there are plans to gradually expand both the recipients and the amount while making it more progressive based on income and assets. Second is promoting home equity conversion mortgages (reverse mortgages). Korean seniors often have little financial assets but high real estate holdings, which could be used to supplement retirement income.
They also suggested expanding labor market participation for "young elderly" (ages 65-74). This includes extending the retirement age, improving wage peak systems, and supporting re-employment to increase jobs for older people and secure their income.
Solving the challenges of an aging society requires a comprehensive approach involving public pensions, home equity utilization, job creation for seniors, and expanded elderly care services and medical support.
2️⃣ Economic Terms
📕 Super-Aged Society
A super-aged society is one where people aged 65 or older make up 20% or more of the total population.
- Societies progress from aging society (7%+), to aged society (14%+), to super-aged society (20%+).
- Korea entered an aging society in 2000, an aged society in 2017, and a super-aged society in 2025.
📕 Basic Pension
The basic pension is a public pension paid to people aged 65 or older to reduce elderly poverty and ensure retirement income.
- It is paid to the bottom 70% of seniors by income and assets.
- As of 2025, the maximum payment is 470,000 won per month, with reductions for couples who both receive it.
📕 Reverse Mortgage (Home Pension)
A reverse mortgage allows homeowners to continue living in their home while receiving monthly payments using their home as collateral.
- Unlike regular mortgages where you pay down a loan, with reverse mortgages you receive payments based on your home equity.
- The Home Pension program guaranteed by the Korea Housing Finance Corporation is the main reverse mortgage product.
📕 Elderly Poverty Rate
The elderly poverty rate refers to the percentage of elderly people with incomes below the poverty line.
- It is measured as the percentage of people with less than 50% of median income.
- Korea's elderly poverty rate is about 40%, the highest among OECD countries.
3️⃣ Principles and Economic Outlook
💡 Economic Impacts and Challenges of a Super-Aged Society
Let's examine the impacts and challenges that entering a super-aged society brings to the Korean economy.
First, the decreasing working-age population may slow economic growth. The working-age population (15-64) began to decline in 2022, and is expected to decrease by more than 300,000 annually from 2030. This reduction in the workforce will lower potential growth. According to the Bank of Korea, aging will reduce Korea's potential growth rate to around 1% in the 2030s. There are also concerns that the increasing proportion of older workers may reduce overall labor productivity. This slower growth could lead to decreased tax revenue, affecting fiscal health.
Second, the growing elderly population will increase welfare spending, adding to the fiscal burden. Spending on basic pensions, health insurance, and long-term care insurance for the elderly is rapidly increasing. Age-related spending is expected to rise from 6% of GDP in 2023 to 14% by 2050. The National Pension Fund is projected to be depleted by 2055, making pension reform urgent. Rising medical costs due to aging also burden the health insurance system. Medical expenses for those over 65 are three times the overall average, and this burden will grow as the elderly population increases.
Third, intergenerational conflicts and changes in asset markets are expected. Increasing the elderly welfare burden may create conflicts between generations as younger people bear more costs. There's also concern that large-scale sales of real estate assets owned by the elderly could put downward pressure on asset prices. In Japan, aging led to increased vacant houses in small cities and falling real estate prices, which could happen in Korea too. Rural areas with many elderly residents face possible economic decline and even regional extinction.
A super-aged society presents challenges beyond simple demographic change, with widespread impacts across the economy. Responding to reduced growth potential, increased fiscal burdens, and generational conflicts requires structural changes and comprehensive policy approaches.
💡 Income Security Measures to Solve Elderly Poverty
Let's look at income security measures to address elderly poverty problems.
First, the basic pension system needs reform. The current basic pension provides up to 470,000 won monthly (as of 2025) to the bottom 70% income bracket, but its poverty reduction effect is limited. To improve this, there are plans to gradually increase the payment amount while making it more progressive based on income and assets. It's especially important to provide more benefits to the poorest groups. The system should also be developed to strengthen connections with the National Pension and eliminate blind spots. KDI suggested gradually increasing the basic pension to 600,000 won monthly, with full payments to the bottom 40% and graduated payments to others.
Second, home equity conversion through home pensions and reverse mortgages is needed. Korean seniors have more real estate assets than financial assets. While 75% of households over 65 own their homes, many are "house poor" with insufficient cash flow. Home pensions allow elderly homeowners to live in their homes while receiving monthly payments, but currently only 3% of eligible seniors participate. To increase participation, there are discussions about lowering the entry age (currently 55+), expanding eligible properties, and increasing monthly payments. Diversifying private reverse mortgage products and expanding tax benefits are also needed.
Third, supporting economic activity among the elderly to secure labor income is important. While Korean seniors' labor force participation rate is higher than the OECD average, they mostly work in low-wage, unstable jobs. Especially for "young elderly" (65-74) who are healthy and willing to work, quality job creation is necessary. Extending retirement age, continuing employment systems, and wage structure reforms would help seniors stay in their main jobs longer. Programs supporting retirees' re-employment and entrepreneurship should be expanded, along with qualitative improvements to senior job programs. The Bank of Korea analyzed that increasing elderly working hours by 10% would raise economic growth by 0.3 percentage points.
Solving elderly poverty requires building a multi-layered income security system including public pensions, home equity utilization, and labor income. Providing personalized support based on individual situations and needs is especially important for increasing retirement income stability.
💡 Comprehensive Measures for a Super-Aged Society
Let's examine comprehensive measures to effectively respond to a super-aged society.
First, we need a multi-layered retirement income security system including public and private pensions. Urgent pension reform is needed to maintain adequate replacement rates for public pensions like the National Pension and Basic Pension while considering fiscal sustainability. At the same time, private pensions such as retirement pensions and individual pensions should be activated to complement public pensions. For retirement pensions, increasing participation rates among small business employees and encouraging annuity payments (rather than lump sums) is important. Expanding tax benefits for individual pensions and introducing matching support for low-income groups should also be considered. Welfare-advanced countries like Finland and Sweden have already built stable retirement income systems through balanced public and private pensions.
Second, developing age-friendly labor markets and industries is important. Strengthening vocational training to increase older workers' productivity and introducing flexible work arrangements are needed. Various work formats like part-time and remote work can support gradual retirement for seniors. Developing age-friendly industries as new growth engines is also important. Creating an industrial ecosystem that can use aging as a business opportunity—such as silver healthcare, senior-friendly financial services, and senior housing solutions—is necessary. Japan is actively developing elderly-friendly industries like care robots and telemedicine to prepare for its "2025 problem" (baby boomers entering the late elderly stage).
Third, expanding elderly care services and promoting social integration is needed. Policies to strengthen public care for the elderly and improve service quality are required. Expanding specialized nursing facilities for seniors with dementia and severe illnesses, along with strengthening home care services, is particularly important. Policies supporting "aging in place"—allowing the elderly to live with dignity in their communities—should be expanded. Improving seniors' living environments, supporting transportation for the mobility-impaired, and enhancing digital accessibility are important for raising quality of life. Programs promoting intergenerational integration and cooperation should also be expanded, such as intergenerational housing, senior-youth mentoring, and integrated leisure programs.
Responding to a super-aged society requires reforming the entire socioeconomic system, not just expanding welfare. Retirement income security, labor market reform, industrial transition, care system development, and generational integration policies must be organically connected. A phased approach considering fiscal sustainability and building social consensus is also important.
4️⃣ In Conclusion
While entering a super-aged society presents major challenges for Korea's economy and society, appropriate response strategies can turn these into opportunities. Elderly poverty and retirement income security are the most urgent tasks, requiring diverse measures like basic pension reform, home pension activation, and expanding jobs for seniors.
The key is building a "multi-layered retirement income security system." While ensuring public pension adequacy and sustainability, it's important to provide various income sources through home equity utilization, labor income, and private pension activation. Personalized support based on individual situations and needs is particularly important.
At the same time, creating age-friendly labor markets and industrial ecosystems is necessary. We need to promote economic activity among "young elderly" through retirement age extension, flexible work arrangements, and re-employment support, while developing elderly-friendly industries as new growth engines.
Expanding elderly care services and promoting social integration is also important. We need to expand nursing facilities and home services for the elderly, and create environments where seniors can live with dignity in their communities. Programs promoting intergenerational understanding and cooperation are also needed.
Responding to a super-aged society is a national task requiring participation from government, businesses, and civil society. Rather than short-term prescriptions, we need to transform socioeconomic systems to be age-friendly from a long-term perspective, and seek sustainable solutions that resonate with all generations. Through these efforts, we can turn aging from a crisis into a new opportunity.