Learning from Japan and South Korea's Struggle with Old-Age Poverty

 

As Japan and South Korea grapple with the world's lowest fertility rates, their burgeoning elderly populations strain pension funds to the brink of collapse, highlighting the urgent need for demographic and policy reforms.

As countries around the world face the challenges of aging populations, Japan and South Korea provide crucial insights into managing old-age poverty. These two nations, despite their distinct cultural and economic contexts, encounter profound difficulties that mirror those in other advanced economies grappling with demographic changes. The lessons learned from their experiences are vital, offering a blueprint for addressing similar issues elsewhere. Both countries have developed extensive but differing pension systems, faced with the need to support an increasing number of elderly citizens amid declining birth rates and changing labor markets.

In the heart of Seoul, within the fashionable district of Dongdaemun known for its vibrant retail and textile industries, there exists a poignant juxtaposition. Here, amidst the bustling commercial activity, is a soup kitchen operated by Kim Mi-kyung and her team, which serves approximately 500 elderly individuals daily. These elderly patrons, many of whom are unemployed and face societal taboos against asking their children for financial support, are emblematic of a larger systemic issue that plagues South Korea. The country has an elderly income poverty rate of nearly 40%, ranking it second highest in the OECD, surpassed only by Estonia. Across the sea in Japan, the situation, while not as severe, is still troubling with a 20% elderly poverty rate, which starkly exceeds the OECD average of 14%. This stark reality in both countries highlights the urgent need for comprehensive policy responses to mitigate the challenges of aging populations.

It is worth noting that both Japan and South Korea face systemic challenges in their pension systems, which were established decades apart and have struggled to adapt to changing demographics and economic conditions. Japan introduced its pension system in 1961, offering broad coverage and a two-tiered payout system based on years of contribution and full-time employment. South Korea’s system, established in 1988 and achieving near-universal coverage by 1999, mirrors Japan’s but with its nuances.

Despite these extensive systems, the reality for many elderly is grim. Basic pensions are insufficient without additional private pensions, which are not an option for everyone. For instance, a full 40 years of contributions in Japan yields about 65,000 yen ($410) per month—barely enough to live on, especially without consistent contributions as is often the case for freelancers and part-time workers.

Both countries also face significant gender disparities. The traditional family model in Japan, for example, affects women's pension entitlements, often leaving them disproportionately impoverished post-divorce or as they age. In South Korea, elderly women are particularly vulnerable, often relegated to precarious jobs or forced into menial labor such as cardboard collecting, as illustrated by 78-year-old Lee Young-ja, whose scant income barely covers her living costs.

The demographic pressures in Japan and South Korea underscore the growing problem. Japan is the world’s oldest society, with 30% of its population over 65. South Korea, while currently at half that proportion, faces the world’s lowest fertility rate, signaling a rapid shift towards an older demographic in the near future. This shift is putting unsustainable pressure on pension systems, with forecasts showing potential insolvency in the coming decades if current trends continue.

Efforts to reform the retirement and pension systems have been initiated, with South Korea planning to raise its retirement age from 62 to 65 and Japan encouraging companies to retain older workers until 70. However, these measures are incremental and may not suffice to address the broader structural issues. Both nations heavily rely on consumption taxes to fund pensions, a regressive approach that could be reevaluated in favor of systems that leverage higher income taxes from the wealthier segments of society.

The experiences of Japan and South Korea offer sobering lessons for other countries with aging populations. These include the need for adaptable pension systems that account for varied employment types and life courses, enhanced support for gender equality in retirement savings, and proactive demographic management strategies, possibly including immigration reform, despite its controversial nature in many societies.

As Japan and South Korea navigate these challenges, their successes and failures provide a template and a warning for others. It is clear that addressing old-age poverty requires a multifaceted approach that includes economic, social, and policy dimensions. The journey is not merely a race to retirement but a complex, evolving climb that demands innovation and compassion to ensure that the twilight years of our elderly are marked by dignity and security, not desperation and neglect.