🚨 A New Starting Point for Pension Reform: Finding Solutions to Aging Crisis Through Housing Pension Expansion
Today Korean Economic News | 2025.06.17
📌 New Government Pushes Housing Pension Expansion as First Step in Pension Reform
💬 President Lee Jae-myung announced his plan to use housing pension expansion as the starting point for pension reform. Housing pension is a system that provides monthly payments to elderly people using their homes as collateral. It is praised for having low government financial burden and being easy to improve. However, the current participation rate is only 1.89%, so plans for easing regulations and strengthening tax benefits are being discussed. Experts say housing pension can play an important role in guaranteeing retirement income in an aging society, but system improvements and changing public awareness are needed.
1️⃣ Easy Explanation
As Korea rapidly becomes an aging society, 'retirement living expenses' have become a major worry. The new government announced it will greatly expand a system called 'housing pension' to solve this problem.
Let me explain what housing pension is in simple terms. For example, imagine a person over 60 who owns a house worth 500 million won but doesn't have enough money for living expenses. If they join the housing pension program, they can receive a fixed amount of money every month using their house as collateral. They can continue living in their house while receiving monthly pension payments.
This is different from regular loans. You don't need to pay interest for life, and you don't need to repay the principal. After the homeowner dies, the house is sold to settle the pension payments and interest received. If the house value is more than the pension received, the remaining money goes to the heirs.
Korea has more elderly people who own homes compared to other countries. According to Statistics Korea, over 80% of households aged 60 and above own homes. However, the reality is that many elderly people are 'house poor' - they have houses but lack cash income.
So why is the participation rate only 1.89%? There are several reasons. First, many people don't know about the system well. Second, there's psychological burden about 'using my house as collateral.' Third, there's a culture of wanting to leave houses to children. Fourth, the joining conditions are strict and procedures are complicated.
The government is considering various solutions to solve these problems. They plan to ease joining conditions, increase tax benefits, and strengthen promotion. Especially for people living in the Seoul metropolitan area where apartment prices are expensive, this could be a very useful system.
However, housing pension is not a perfect solution either. If house prices fall, the pension you can receive also decreases, and there are interest rate risks if low interest rates continue for a long time. It can also be affected by housing market volatility.
Nevertheless, housing pension is one of the important means to guarantee retirement income in an aging society. If the government's improvement efforts and people's awareness changes happen together, it is expected to help many elderly people.
2️⃣ Economic Terms
📕 Housing Pension
Housing pension is a system where people aged 55 and above can receive pension payments for life or a certain period using their owned house as collateral.
- It is a public pension product guaranteed by Korea Housing Finance Corporation.
- It is also called 'reverse mortgage' because you can continue living in your house while receiving monthly pension payments.
- The structure involves repaying loan principal and interest through house sale after the subscriber's death.
📕 Reverse Mortgage
Reverse mortgage is a financial product with the opposite concept of regular home mortgage loans.
- Regular loans involve borrowing money and repaying monthly, but reverse mortgages involve receiving money monthly.
- You receive a certain percentage of the house value as pension while living in the collateral house.
- It is widely used as a means to respond to aging in developed countries.
📕 Aging Society
Aging society is classified based on the percentage of population aged 65 and above.
- If the population aged 65 and above is 7% or more, it's an aging society; if 14% or more, it's an aged society.
- If 20% or more, it's classified as a super-aged society.
- Korea entered an aged society in 2018 and is expected to become a super-aged society in 2025.
📕 Retirement Income Security
Retirement income security means securing the income needed for life after retirement.
- The basic system consists of three pension pillars: National Pension, retirement pension, and personal pension.
- Housing pension is called the fourth pillar and is a means of income security using real estate assets.
- OECD recommends 70% of pre-retirement income as adequate retirement income.
3️⃣ Principles and Economic Outlook
✅ Structure and Operating Principles of Housing Pension System
Let's examine how housing pension works and why it's gaining attention as an alternative for aging society.
First, housing pension is an innovative financial product through real estate asset liquidation. Real estate accounts for about 75% of Korean household assets, which is very high. However, real estate is an illiquid asset that's difficult to convert to cash, making it hard to use for actual living expenses. Housing pension is an innovative solution to this problem. For example, if a 70-year-old couple owning a 500 million won house joins the housing pension, they can receive about 1.3 million won monthly pension for life. This is more than double the average National Pension amount (about 600,000 won). Especially for residents in areas with high house prices like Seoul and the metropolitan area, there's a significant retirement income security effect.
Second, the risk management system of housing pension guarantees stability. The biggest concerns about housing pension are 'house price decline risk' and 'longevity risk.' What happens if the total pension received exceeds the house value? Korea Housing Finance Corporation guarantees this risk. That means even if house prices fall, pension payments continue, and the corporation covers the shortfall. Also, even if subscribers live beyond 100 years old, pension is paid for life. Conversely, if the house value exceeds the pension received, heirs receive the difference. Thanks to this system, subscribers can receive pension with peace of mind, and heirs don't suffer losses.
Third, housing pension is a sustainable welfare policy that doesn't increase government financial burden. In the case of National Pension, the fund is expected to be depleted by 2057 due to population aging. To solve this, either premiums must be raised or benefits reduced, but neither is easy. In contrast, housing pension uses personal assets, so it doesn't burden government finances. Rather, it has the effect of growing related industries through Korea Housing Finance Corporation's guarantee fees and financial companies' operating fees. For this reason, the reverse mortgage market is growing rapidly in developed countries too. In the United States, reverse mortgage balance amounts to $130 billion (about 170 trillion won).
Housing pension is a new model of social security system using personal assets. It's evaluated as an innovative alternative that can guarantee retirement income without financial burden in an aging society.
✅ Causes of Low Participation Rate and Improvement Plans
Let's analyze why the housing pension participation rate remains at 1.89% and plans to increase it.
First, lack of awareness about the system and negative perceptions are the biggest barriers. According to a Korea Housing Finance Corporation survey, 40% answered they 'don't know about housing pension at all.' Even among those who know, many have wrong perceptions like 'the bank will take away the house' or 'it leaves debt to children.' In reality, it's a 'non-recourse loan' where subscribers can live in their house for life and debt is not inherited by heirs, but such misunderstandings are widespread. Especially in Korean culture that values 'filial piety,' parents' psychology of not wanting to burden their children also plays a role. The government plans to expand large-scale publicity campaigns and education programs focused on success stories to solve this.
Second, strict joining conditions and complicated procedures act as entry barriers. Currently, to join housing pension, you must meet conditions like being over 55 years old, owning a house worth 900 million won or less, and having no house or owning one house. Also, procedures like house appraisal, lawyer consultation, and various document preparation are complicated and time-consuming. Especially, the 900 million won house value limit is below Seoul apartment average price (about 1.2 billion won), excluding actual demand groups. The government is pursuing improvements like raising the house value limit to 1.2 billion won, introducing online application systems, and providing one-stop services. They also plan to ease requirements so that if one spouse is over 55, they can join.
Third, lack of tax benefits and fee burden reduce economic attractiveness. Currently, housing pension is subject to pension income tax, and various fees (initial guarantee fee, annual guarantee fee, loan handling fee, etc.) are considerable. In contrast, National Pension and retirement pension have various tax benefits, making housing pension relatively less attractive. Also, there are penalties and various costs when canceling mid-term, lacking flexibility. The government is considering improvements like expanding tax benefits for housing pension income, reducing fees for low-income groups, and allowing partial withdrawals. Especially, they plan to increase options by introducing 'hybrid' products that can freely combine lump sum and monthly payments.
To activate housing pension, system improvements along with social awareness change are needed. Active policy improvements by the government, product innovation by financial companies, and changes in people's awareness about retirement preparation must happen together.
✅ Economic Ripple Effects of Housing Pension Expansion
Let's examine the economic effects housing pension expansion would have on individuals and society.
First, increased consumption by elderly people will contribute to domestic economy activation. Currently, Korea's elderly relative poverty rate is 43.4%, more than three times the OECD average (13.5%). If 'house poor' elderly people who have houses but lack cash income secure stable cash flow through housing pension, their consumption capacity will greatly increase. The Bank of Korea analyzed that consumption increases by 1 trillion won annually per 100,000 housing pension subscribers. If the participation rate rises to 10%, we can expect an additional consumption effect of 20 trillion won annually. This will lead to activation of service industries mainly used by elderly people like medical care, leisure, and dining, helping job creation too.
Second, real estate market stabilization effects are also expected. If housing pension spreads, elderly people can secure cash without having to sell their houses, reducing the appearance of distressed sales. This acts as a stabilizing factor that eases rapid housing market fluctuations. Also, excessive real estate investment demand for inheritance purposes may decrease. For young people, if parents solve their retirement through housing pension, inheritance burden decreases, allowing them to focus more on getting their own homes. Long-term, the way wealth transfers between generations is expected to change from 'real estate inheritance' to 'cash utilization,' improving real estate market soundness.
Third, it can become a new growth engine for the financial industry. As the housing pension market grows, related financial products and services will diversify. Currently, Korea Housing Finance Corporation has a monopoly, but there's possibility of creating a competitive system where private financial companies can also participate in the future. Also, the silver finance market including health management, life support, and asset management services linked to housing pension will expand. Related service industries like real estate appraisal, legal, tax, and insurance are also expected to grow together. Korea Institute of Finance forecasts that when the housing pension market matures, it will create economic effects of 5 trillion won annually including related industries.
Housing pension expansion is an important policy tool that changes the economic structure of aging society beyond simple financial product distribution. It's evaluated as an innovative approach that can simultaneously achieve individual retirement income security and sustainable growth of the national economy.
4️⃣ Conclusion
The new government's housing pension expansion policy is a realistic and innovative approach to retirement income security problems in aging society. It presents a sustainable alternative that complements limitations of existing pension systems while not increasing government financial burden.
The biggest advantage of housing pension is that it can effectively utilize real estate assets owned by Korea's elderly population. For 'house poor' elderly people who have houses but lack cash income, it can be a very practical solution. Especially for residents of the Seoul metropolitan area where real estate prices are high, significant retirement income security effects can be expected.
However, several challenges must be solved for success. Above all, accurate understanding of the system and social awareness improvement are needed. It's important to correct wrong perceptions like 'they'll take away the house' or 'it leaves debt to children' and promote the safety and usefulness of housing pension.
System improvements are also urgent. Strict joining conditions and complicated procedures must be simplified, tax benefits expanded, and various product options provided. Especially, adjusting the 900 million won house value limit to match reality and building online application systems to improve accessibility are needed.
Economic ripple effects are also expected to be considerable. Domestic economy will be activated through increased elderly consumption, and it will contribute to real estate market stabilization and financial industry growth. Long-term, there's also possibility of improving society's overall economic structure as wealth transfer methods between generations change soundly.
Ultimately, the success of housing pension expansion policy depends on how well the government's system improvement will, financial companies' product innovation, and people's awareness change work together. If these three elements work together, housing pension can become a reliable retirement income security means for aging society.