Facing the future [electronic resource] : Korea's family, pension and health policy challenges

2007·3.7 MB·English

by  Organisation for Economic Co-operation and Development

:
Facingthe Future
Korea’s Family, Pensionand Health
Policy Challenges
inttr
OECD
:
Facing the Future
Korea’s Family, Pension and Health
Policy Challenges
2007
0£Cd((^
ORGANISATIONFORECONOMICCO-OPERATIONANDDEVELOPMENT
ORGANISATION FORECONOMIC CO-OPERATION
AND DEVELOPMENT
TheOECDisauniqueforumwherethegovernmentsof30democraciesworktogethertoaddresstheeconom-
ic,socialandenvironmentalchallengesofglobalisation.TheOECDisalsoattheforefrontofeffortstounder-
standandtohelpgovernmentsrespondtonewdevelopmentsandconcerns,suchascorporategovernance,the
informationeconomyandthechallengesofanageingpopulation.TheOrganisationprovidesasettingwhere
governmentscancomparepolicyexperiences,seekanswerstocommonproblems,identifygoodpracticeand
worktoco-ordinatedomesticandinternationalpolicies.
TheOECDmembercountriesare:Australia,Austria,Belgium,Canada,theCzechRepublic,Denmark,
Finland,France,Germany,Greece,Hungary,Iceland,Ireland,Italy,Japan,Korea,Luxembourg,Mexico,the
Netherlands,NewZealand,Norway,Poland,Portugal,theSlovakRepublic,Spain,Sweden,Switzerland,Turkey,
theUnitedKingdomandtheUnitedStates.TheCommissionoftheEuropeanCommunitiestakespartinthe
workoftheOECD.
OECDPublishingdisseminateswidelytheresultsoftheOrganisation'sstatisticsgatheringandresearchon
economic,socialandenviromnentalissues,aswellastheconventions,guidelinesandstandardsagreedbyits
members.
ThisworkispublishedontheresponsibilityoftheSecretary-GeneraloftheOECD.
Theopinionsexpressedandargumentsemployedhereindonotnecessarilyreflect
theofficialviewsoftheOrganisaticnorofthegovernmentsofitsmembercountries.
OECD(2007)
PNdu'obelxpirlsqohsiirtnoagdt:uicotrniiogdnh.utscd@oropoeiyct,d.dtoerragncsoompriiesb,syio2nf0,aoxrr(ut3er3and1se)lsa4tG5irona2n4odfs1-t3Ahui9sg1upsutPbielnrismc,aitsis7oi5no0n0m6atoyPapbrhieost,moacFodrpaeyncwaeitph([email protected])o..ulAdppbliecaatdidornessssehdoutoldthbeeCseennttretofrOaEnfCaiDs
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FOREWORD
KoreawillagemuchfasterthanotherOECDcoimtries!Backin2000,only7%ofKorea'spopulationwereover
65;in2050,seniorcitizenswillconstituteabout37%ofKorea'spopulation.Populationageingwillunfoldatsuch
ahighspeedbecauseKoreahasbeenveiysuccessfulreducinginfantmortalityratesandincreasinglifeexpectancy.
Since1996,whenKoreajoinedtheOECD,lifeexpectancyatbii1hhasincreasedbyover4years themostrapid
increasemtheOECD.However,Koreahasfailedtomaintainbirth-ratesatclosetoreplacementrate,andsince
1996,thefertilityratehasdroppedfrombeingjustbelowtheOECDaverageat1.6babiesperwoman,toless
than1.2childrenperwoman,andKoreanowhasthelowestbirthrateamongOECDcountries.
Populationageingonthisscalewillinevitablyleadtoahugeincreaseinspendingonold-ageincomesupport
andhealthcare,whetherinthepublicorprivatesectors.Inaddition,thedemographicdynamicsandtheweakening
ofexistingfamilynetworkswillalsorequirethedevelopmentofapublicfamilypolicywhichsupportsthereconcilia-
tionofworkandcarecommitmentsofworkers.Inall,theOECDbelievesthatthreeobjectivesmustbetargeted
forfuturepolicydevelopment.First,thedeclineintheworking-agepopulationneedstobeslowedsecond,working
opportunitiesneedtobeextendedand,third,affordableandsustainablepensionandhealthcarepoliciesmustbe
implemented.
InrecognitionofthepolicychallengesthatpopulationageinginvolvesthePresidentialCommitteeonAgeing
SocietyandPopulationPolicyconvenedaPolicyForumonLowfertilityandAgeingSociety:"FacingtheFuture
PolicyChallengesintheAgeingEra".Thisinternationalpolicyforumtoexchangebestpracticesandpolicyexperi-
encesmOECDcountrieswasheldSeptember13-14,2006inSeoul,anditwasopenedbyPrimeMinisterHan
IVfyungSukofKorea,withopeningaddressesofV&nisterRhyuSiminoftheMinistr}^ofHealthandWelfare,former
NewZealandPrimeMnisterMs.JennyShipleyandOECDDeputySecretary-GeneralRichard.E.Hecklinger.
FortheOccasiontheOECDalsopreparedthissummarystudywhichlooksatexistingKoreanfamily,health
andpensionpoliciesfromaninternationalperspectiveandconsiderstheminviewoftheemergingpolicychallenges.
ThereportwaspreparedbyWillemAdema(EditorandFamilypolicy),JeremyHurst(HealthandLong-termcare
policies),Ms.MonikaQueisser(Pensions)assistedbyMaximeLadaiqueandAnnettePanzera(Statisticians),under
theoverallsupervisionoftheHeadoftheSocialPolicyDivision,MarkPearson.
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Coniiut'''
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TABLEOFCONTENTS
Foreword
ExecutiveSummary
1,Settingthescene:therapidlychangingsocio-economicpolicycontext
1.1.Povertyandincomeinequality 12
1.2.Publicspendingonsocialsupport -14
1.3.Theroleoftamilysupportisweakening• 15
1.4.ExtraordinarilyrapidageingoftheKoreanpopulation 16
2.Familypolicydevelopment 21
2.1.Socio-economicfactorscontributingtolowfertilityrates 21
2.2.Directpublicpolicyintervention ill
2.3.Fertilityandemployment 27
2.4.Facilitatingthereconciliationofworkandfamilylife 27
2.4.1.Unfavourahlefemalelabourmarketoutcome.sinKorea ^30
2.4.2.BarrierstomaternalemploymentinKorea 34
2.4.1LLaboursupplyconsiderations 36
2..5.Thewayahead- 38
3.PreparingthepensionsystemfortheFuture- 43
3.1.Thecurrentsituation 43
3.1.1.Pensionspendingwillincreaserapidly 43
3.1.2.Theincomesituationandpovertyamongtheelderly- 44
3.1.3.Retirementbehaviourandthesituationofolderworkers 45
3.1.4.Movingfromretirementallowancestoprivatepensionschemes 48
3.2.KoreanpensionreformsinanOECDcontext^ 49
3.3..22..21..^P1e1nsOioEnCrDefpoerrmsspeicntiKvoereoanpensionreform r_4595
4.Towardsasustainablehealthandlong-termcarepolicy• 61
4.1.Projectionsofhealthandlongtermcarespending- 61
4.1.1.Projectionsofpublichealthcarespending- 61
4.1.2.Projectionsofpubliclong-termcarespending 65
4.1.3.Projectionsoftotalexpenditureonhealthandlong-termcare 67
4.2.Healthandlong-termcarepolicies:responsestoageingandlowfertilitytrends- 68
4.2.1.Encouraginghigherfertility 68
4.2.2.Preventingill-health 69
4.3.Financingadditionalhealthandlongtermcareexpenditure 72
4.3.1.Financinghealthservices 72
4.3.2.Financinglong-termcareservices 74
4.4.Extendingcapacity 78
4.5.Containingcosts 78
4.6.Conclusions JO
Bibliography 85
EXECUTIVESUMMARY
Koreafacesanextraordinaryageingchallenge.KoreawillagemuchfasterthanotherOECDcountries:in2000,
about7%ofKorea'spopulationwereover65:in2050,seniorcitizenswillconstituteabout37%ofKorea'spopulation.
Populationageingwillunfoldathighspeed,firstlybecauseofthedramaticincreaseinlifeexpectancyfromjust
over52yearsin1960toover77yearsin2004;amajorcauseofthiswasthespectaculardecreaseininfantmortality
ratesfrom45infantsper1000livebirthsin1970to5.3in2002.Thesecondcauseofpopulationageingisthe
sharpdeclineinbirth-ratesfromcloseto3childrenperwomenin1975tolessthan1.2in2004.Reducedchild
mortalityratesandincreasedlifeexpectancyareindicatorsofthesuccessoftheKoreaneconomyandsociety.
However,thedeclineinfertilityratesinKoreaisevidenceofstrainsinsocietywhichwilldamageprosperityin
thefriture.
TheserapidlyunfoldingcfynamicsofpopulationagemginKoreawillchallengeexistingfamily,pensionandhealth
policiesanddemandadjustmentofthesepoliciestoemergingneeds.Populationageingwillinevitablyleadtoa
hugemcreasemspendingonold-ageincomesupportandonhealthandlong-termcareservices.Adaptmgtothe
pressuresofanageingsocietywillalsorequirethatagreaterproportionoffutureworkingagepopulationswork.
Femalelabourforceparticipationislikelytoincreasesopolicieshavetobeputinplacethatsupportabetterreconcili-
ationofworkandcarecommitments.Suchpolicieswillhelpfertilityrates,slowingthedeclineintheworking-age
populationandextendworkingopportumties.Thetliirdobjectivethatunderliesasuccessfulpopulationageingstrategy
isvigorouslytopursuereformwhichensuresatfordableandsustainablepension,healthandlong-termcarepolicies.
Familypolicy
Inmanyways,Koreanfamilypolicyisinitsinfancy.TheprevalenceofthetraditionalConfucianKoreanfamily
supportsystemlimitedtheneedforapublicfamilypolicyinKorea.However,theroleoftraditionalfamilynetworks
isweakening,andpublicpoHcyisfindingitdifficulttofilltheemerginggap.Publicspendingonfamilybenefits
(includir^maternityandearlycareandeducationsupport)wasjustover0.1percentofGDPin2003,whilepublic
spendingoneducationandhealthwascloseto4and3percentofGDP,respectively.Nevertheless,thecostof
educationandhealthforparentsremainsconsiderable.
WhileKoreahasdevelopedacomprehensiveeducationpolicy,forparentswithveiyyoungchildrenpublicsupport
ismuchmorelimited.Thedecliningbirth-ratesgiveanindicationastohowdifficultitisinKoreaforbothfathers
andmotherstocombinecareerswithcarecommitmentstochildren.Thechangingnatureoffamilyrelationships
andthedemographictrendstowai'dsbothmoreelderlyinneedofcareandmoredemandforfemalelaboursupply
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Conmii'''-'
furtheraddtothegrowii^needtodevelopamorecomprehensivepublicfamilypolicythatprovidessupportfor
children,parentsofworkingage,andsemorcitizens.
However,reformofpublicfamilybenefitsisnotenough.Fora'workandfamilypolicy'tobeeffectiveitis
essentialthatworkplacepracticesgivemenandwomen,mothersandfathers,afairchanceinfulfillingtheirlabour
marketaspirations.AtpresenttheKoreanlabourmarketfailstodothis.Womenfrequentlyareexpectedtodiscontinue
theircareerandregularemploymentcontractsonchildbirth,ifnotalreadyonmamage,andalltoooftenemployment,
careerandcarecommitmentsprovetobedifficulttocombine.Asaresult,womendropoutofthelabourforce,
ordecidetohavenochildren.Bothbirthratesandfemalelabourforceparticipationratesarelowerthantheymay
otherwisebe.
Forbirth-ratestorebound,oratleaststabilise,andaddressfuturelaboursupplyconcernsitisnecessarytochange
workplacepracticessothatpaidworkandfamilycommitmentsarenolongermutuallyexclusiveactivitiesformen
andwomen.
Pensionpolicy
Publicspendingonretirementbenefitsislowatpresent,butrapidpopulationageingwillsoonchangethis.The
sharpesteffectswillgenerallybefeltoverthenexttwo-to-threedecades,asthebaby-boomgenerationreachesretire-
mentage.Giventheexistingdesignofcontributionratesandbenefitentitlements,theNationalPensionSystem(NPS)
isscheduledtorunintodeficitby2036,withitsfundsbeingexhaustedin2047.Comprehensivereformofthecontrib-
utory'pensions\'stemwoiidin\’olveinteralia,increasingcoverageamongtheworkingpopulation;highercontribution
rates;andlow'erbenefitentitlements.Thechallengeoftindingtherightbalanceofmeasurestoensuresustainability
ofthepublicpensionsystemisfurthercomplicatedbythehighpovertyriskamongtheelderly,especiallyamong
thosewhodonotlivemhouseholdswiththeirchildren.Thechallengeforpensionpolicyisthustodevelopreforms
thatbothimprovethefinancialsustainabilityofthepensionsystemandfightpovertyamongtheelderly.
Thenecessityofsystemicpmsionreform,mcludingtheintroductionofabasicpensioniscruciallyrelatedtocoverage
issues.SmceNPSpensionbenefittbrmuiaealreadyincludeabasicandaneamings-relatedcomponent,tiieintroduction
ofauniversalbasicpensionwouldnotbenecessaiy'ifasufficientproportionofthepopulationwerecoveredby
thescheme.However,despiterecentincreasesincoverage,thetotalnumberofcontributorsequalsabout55%of
thelabourforce,andcoverage(innumbersandlevelofcontributions)isparticularlylowamongtheself-employed.
ComparedtootherOECDcountries,theprojectedshareoftheumnsuredpopulationisratherlarge.
Limitedcoverageincreasestheriskthatpo\'ertyamongolderpersonswillbehighinthefutiu'e(OECD,2005a).
Furthermore,theeffectivenessofanypensionsysteminpreventinglarge-scaleold-agepovertyobviouslydepends
onthelevelatwhichtheoldageallowancesareset.Governmentproposalsinvolveanincreaseoftheexisting
means-testedold-ageallowancepaymenttoKRW80,000permonth,whereasproposalsputforwardbytheopposition
parft'introduceanationalbasicpensionforallseniorcitizenswithabasicpaymentofKRW310,000.Compared
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tothegovernmentproposals,theintroductionofsuchabasicpensionwouldreducetheold-agepo\'ertyrisk.
However,theintroductionoftheuniversalbasicpensionschemewouldalsoimposeamuchhigherfiscalcost.
AccordingtotheNationalPensionService'scostingof\'ariousproposals,thecombinationofauniversalbasicand
eamings-relatedpensionwouldrequireexpendituresof2.5%ofGDPin2010and10.9%m2070whereasnewgovern-
mentpensionreformproposalswouldcost1.2%ofGDPin2010and5.9%in2070.Thecontributionsandtaxes
requiredtofundthehigherleverofpensionspendingwouldleadtoareductioninKoreanemployment,possibly
byasmuchastwopercentagepointsormorebelowthatwhichwouldoccurwiththegovernmentproposals.The
choicethereforeisbetweenahigherlevelofpensionerpovertyandlowertaxationoralowerlevelofpensioner
poverty,highertaxationandloweremployment.Thereisno'right'answerinmakir^thischoiceitisuptothe
Koreanpeopletodecide.
Healthandlong-termcarepolicy
Rapidpopulationageing,theweakeningoffamilynetworkstogetherwithtechnologicalchangeandrelativecost
changes,aretoraiseck'amaticallythedemandsforpublicspendir^onhealthandlong-termcareinKorea.OECD
projectionssuggestincreasesinspendingto2050thatarelargerthanforanyotherOECDcountryKoreamayneed
tofundadditionalpublicspendingonhealthandlong-termcareservicesfromabout6to8.6percentagepoints
ofGDPby2050.
Anumberofkeychoiceswillhavetobemadeinfundingandprovidingextrahealthandlor^termcareservices
asthepopulationages.Whatshouldbetheroleforpublicservices,familiesandindividualsinfundmgcare,and
whatshouldbetherolesofformalandinformalcarers,respectively,indeliveringthelong-termcareserviceswhich
willbeneeded?
Vigorouspromotionofhealthyageingwillbecriticalformanagingtheextrademandforhealthandlongterm
care.Forexample,moreshouldbedonetoreducethehighrateofsmokingamongmeninKorea,and/ortomaintain
agooddietandahighrateofphysicalactivityinthe(elderly)population.
Anewsocialprotectionschemeforlong-termcarewouldrelievethepressurefor'socialhospitalisation',butcare
mustbetakentodesignitinsuchaway,forexamplethroughincometestmg,thatitremainsaffordableashie
old-agedependencyburdenontheworkingpopulationincreases.Theelderlypopulationthemselvesshouldbeex-
pectedtocontributetotherisingcostsofhealthandlor^-termcareaspensionsgrowandtheirsavingsaccumulate.
Theyshouldbeexpectedtomakecontributionstotherelevantinsuranceschemesandtocontinuetomakeco-pay-
ments,subjecttoassistanceforthepoor.
Itisimportanttomaintainasfaraspossiblethecontributionoffamilyandinformalcarerstothecareofthe
elderly.Careathomeshouldbepromotedanduseshouldbemadeofmonetary'paymentstoinformalcarers,when
appropnateandofrespitecareforthedependentelderly.Theseandothercostcontainmentmeasureswillalsobe
criticalforthelong-termfinancialsustainabilityofbothhealthandlong-termcareinsurance.
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Copyrightedt
TTlIlInlluPsoi!liJicsyacuFe^omrsauisma
onLowFertilityandAgeingSociety
FacingtheFuture;PolicyChallengesintheAgeirsgEra
Setting the scene: the rapidly
changing socio-economic policy
context
9j>