Korea urged to overhaul pension, tax systems to cope with rapidly-aging population

An elderly man is seen at Tapgol Park in central Seoul in this file photo. Korea Times file

Experts also recommend greater integration of highly-educated women into workforce

By Kim Bo-eun

Korea faces substantial tasks as the country grapples with one of the fastest rates of population aging around the globe that is set to make it the world's most aged society in 2045.

The number of people aged 65 and over in Korea increased by 4.4 percent on average on an annual basis from 2011 to 2020, according to data from the Korea Economic Research Institute. That rate is 1.7 times that of the OECD average of 2.6 percent.

To reverse this trend, policymakers until recently focused mainly on encouraging more births through various monetary incentives and support for childcare. But the government has now begun acknowledging the trend of declining births, while preparations are being made to adapt to the demographic change.

One way to shore up the working-age population and boost productivity is to increase female participation, Oh Il-sun, the director of Korea CXO Institute, a corporate tracker, noted.

"Efforts are needed to better utilize women with high levels of education," he said. "Systems such as more childcare facilities need to be put in place to enable this."

But time is running out quickly for Asia's fourth-largest economy to avoid losing growth momentum due to a sharp drop in the working-age population.

Korea became an "aged society" in 2017, with those aged 65 or older accounting for more than 14 percent of the population, after becoming an "aging society" in 1999, when more than 7 percent of the population constituted the age group.

The country is nearing the 20-percent threshold that will categorize Korea as a "super-aged society," with projections that the portion of the senior population will reach this mark in 2025. The figure is forecast to reach 37 percent in 2045, which would make Korea the world's oldest population.

The pace of aging is accelerating as childbirths drop, as people delay or give up on marriage and also as young people defy traditional norms amid soaring housing prices and the cost of raising children.

The number of new births dropped to a record low in May, data released last month showed. There were a total of 20,007 newborns in May, which marked the lowest figure for the month since Statistics Korea began compiling related data in 1981.

Korea's fertility rate ― the average number of children a woman is expected to give birth to in her lifetime ― came to an all-time low of 0.81 last year. It was the fourth consecutive year since 2018 that the rate was below 1.

Accordingly, the country's total population fell for the first time in 2021, according to data released last month. The figure came to 51.74 million in November 2021, down by 91,000 or 0.2 percent, from 2020.

A shrinking population means that the country has a smaller workforce and a decline in productivity.

An aging population is also detrimental to the economy, given its adverse impact on consumption, due to faltering demand as income falls after retirement.

The Bank of Korea projects the ongoing aging of the population will cause a 0.7-percent fall on average in consumption on an annual basis, from 2020 to 2035.

The Yoon Suk-yeol administration drew up a taskforce in June to tackle this structural problem. The team will seek ways to beef up the country's workforce and boost births, while also preparing for an aging and shrinking workforce.

Jeon Young-soo, an assistant professor of global social economic studies at Hanyang University, said efforts to adapt to an increasingly aged population are also key.

"Korea needs to make fundamental changes in welfare policies such as the public pension, as well as the taxation system," he said.

"At the same time, it needs to remove regulatory barriers to enable innovation in the business sector, to enable growth," Jeon added.

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