KDI FOCUS Reforming the Basic Pension Eligibility Threshold February 25, 2025
Reforming the Basic Pension Eligibility Threshold
February 25, 2025-
Dohun Kim
프로필
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Seunghee Lee
프로필
South Korea’s Basic Pension, which currently covers 70% of its older adults, does not reflect the declining elderly poverty rate as their income and asset levels rise. To ease fiscal burdens while effectively addressing elderly poverty, its eligibility threshold should shift from a fixed share of older adults to one tied to the national median income, better targeting vulnerable older adults for support. In the long term, integrating the Basic Pension with the National Basic Livelihood Security System to establish an old-age minimum income guarantee warrants consideration.
Ⅰ. Issue
South Korea’s Basic Pension is a non-contributory scheme introduced in 2014, expanding and restructuring the Basic Old-Age Pension, which was established in 2008 to alleviate poverty among the bottom 70% of older adults (aged 65 and older) based on recognized income. In 2014, Korea had the highest elderly poverty rate among OECD countries at 44.1%, with nearly half of its seniors living below the poverty line—50% of the national median income—placing them in economic vulnerability.
However, as younger cohorts of older adults attain higher income and asset levels, the Basic Pension’s current recipient base increasingly includes non-vulnerable older adults. Benefits are granted to those whose recognized income falls below the eligibility threshold, the upper limit for pension qualification. Currently, the threshold is set at the bottom 70% of recognized income among older adults, making eligibility solely dependent on the income distribution within this demographic. Consequently, even as their financial conditions improve, the threshold adjusts upward in tandem, maintaining coverage for 70% of older adults.
Currently, the Basic Pension eligibility threshold sets the bottom 70% of recognized income among older adults as recipients, failing to adequately reflect their improved financial conditions.
Figure 1(A) illustrates the trend in the Basic Pension eligibility threshold relative to the national median income for two-person households. Unlike the eligibility threshold, calculated solely within the elderly population, the national median income represents all Korean households and is published by the Ministry of Health and Welfare. The 2015 eligibility threshold was 50% of this median income but rose rapidly to 93% for 2025, nearly matching the national median income within a decade. This trend indicates that, with improving financial conditions among older adults, the bottom 70% eligibility threshold has allowed many beneficiaries to qualify for and receive benefits, despite financially being better off than past cohorts.
In 2015, the Basic Pension eligibility threshold was 50% of the national median income, but as the financial conditions of older adults have improved, it has risen to nearly match the median income by 2025.
Meanwhile, Korea anticipates a surge in Basic Pension recipients amid rapid population aging. Its beneficiaries rose from 2 million in 2015 to 6.5 million in 2023, more than tripling, while the monthly base amount rose 1.6-fold, from 200,000 won in 2014 to 323,000 won in 2023 (343,000 won in 2025). As a result, its expenditures more than tripled, from 6.8 trillion won in 2014 (0.5% of GDP) to 22.6 trillion won in 2023 (1.0% of GDP), making it Korea’s largest social welfare program in operation (Figure 1(B)). With the elderly population projected to grow from 9.93 million in 2024 to an estimated 19 million by 2050, fiscal outlays will increase in tandem, highlighting the need to reform the eligibility threshold to better reflect the financial circumstances of older adults.
Based on these issues, this paper proposes reforms to the Basic Pension eligibility threshold, specifically shifting from the current cutoff at the bottom 70% of older adults to a fixed percentage of the national median income.
This study examines examines shifting the eligibility threshold from the bottom 70% of older adults to a fixed percentage of the national median income.
Ⅱ. Elderly Poverty and the Basic Pension: Addressing the Intergenerational Gap
This paper addresses two key questions on reforming Basic Pension eligibility: ① whether elderly poverty has been actually improving among younger senior cohorts; ② whether the elderly poverty rate will decline going forward.
Figure 2(A) illustrates elderly poverty rates by birth cohort: rates are higher for those born in the 1930s and 1940s and lower for those born in the 1950s. The data shows that the overall elderly poverty rate is attributable to the high poverty rates of cohorts born before 1950 (Lee, 2023). As individuals born in the 1960s and 1970s, who are financially better off and greater in number than those born pre-1950, join the elderly population, the elderly poverty rate is expected to decline.
A similar trend is observed in the proportion of elderly adults with low income and low assets across birth cohorts. Within the elderly population, those whose income and assets fall below the standard deduction amount have their recognized income treated as 0 won. This low-income, low-asset share varies by cohort. Figure 2(B) depicts the share of elderly individuals with zero recognized income across cohorts from 2018 to 2023. Apparent differences emerge in the 1930s, 1940s, and 1950s cohorts, confirming lower poverty levels in later cohorts. Notably, among the 1950s cohort, which has recently joined the elderly demographic, the low-income, low-asset share falls below 10%. Furthermore, cohort differences in the proportion of zero recognized income remain relatively stable over time. In other words, the gap across cohorts persists in the share of ‘older adults with zero recognized income’ (those lacking both income and assets) even after adjusting for age.
Within the elderly population, more recent birth cohorts have shown improvements in poverty levels.
The intergenerational economic disparities stem partly from varying benefits provided by the National Pension. As the bedrock of Korea’s old-age income security, it achieved universal coverage only in 1998, leading to notable disparities in pension receipt rates and benefit amounts across birth cohorts. Figure 3 shows National Pension receipt rates and average monthly benefits by birth cohort, revealing a clear upward trend among later cohorts. For those born in 1950 or later, the receipt rate approaches 60%, with benefit amounts nearly doubling those of earlier cohorts, reflecting this scheme’s growing maturity. This trend suggests that cohorts born in the 1960s and 1970s, as they gradually enter the elderly demographic, will see enhanced retirement security from greater National Pension benefits.
The National Pension also shows higher receipt rates and benefit amounts among later cohorts, which is expected to contribute to a decline in future elderly poverty rates.
Then, what are the prospects for the elderly poverty rate in Korea? Multiple indicators for financial improvements among recent cohorts suggest a gradual decline. Figure 4 presents long-term projections through 2070, indicating a sustained downward trend. A median scenario projects that the poverty rate will slowly fall to the 30% range by 2050 and to the low 20% range by 2070. These projections are consistent with findings from other studies (Ahn and Choi, 2022; Ryu, 2024).
Considering these trends, the elderly poverty rate is expected to maintain its decline.
Ⅲ. Eligibility Threshold Reform and Fiscal Projections
Despite declining poverty rates among newly entering elderly cohorts, the eligibility threshold for the Basic Pension remains at 70% of the elderly population, pushing the threshold closer to the national median income. Moreover, Korea’s exceptionally rapid population aging is likely to intensify fiscal pressures on the pension. Therefore, eligibility should shift from covering the bottom 70% of the elderly to targeting economically disadvantaged seniors across all households. This reform would slow expenditure growth and enhance poverty reduction by redirecting fiscal savings to raise benefit amounts for vulnerable seniors.
This paper explores shifting Basic Pension eligibility to a threshold tied to the national median income (NMI), aligning with the Basic Pension Adequacy Assessment Committee discussions. Since the NMI serves as a standard for public assistance programs like the National Basic Livelihood Security System, linking the Basic Pension threshold to it would enhance policy coherence across social assistance programs.
The national median income (NMI) is widely used as a criterion for various public assistance programs, including the National Basic Livelihood Security System, due to its representativeness.
To estimate long-term fiscal savings from the proposed eligibility reform, this study projects Basic Pension expenditures from 2025 to 2070, using the methodology of Shin and Kim (2021) from the National Pension Service. Three scenarios are analyzed. The baseline scenario remains on the current path, with the 2025 monthly base amount of 343,000 won indexed to inflation and the eligibility threshold at the bottom 70% of recognized income (RI) within the elderly demographic. The second scenario (NMI 100%) keeps the base amount but adjusts the threshold to older adults with RI at or below 100% of the NMI. The third scenario (NMI 100%→50%) initially sets the threshold at or below 100% of the NMI and lowers it annually to 50% or less by 2070.
This study estimates the fiscal impact of the last two scenarios: adjusting the eligibility threshold for older adults with recognized income at or below 100% of the NMI and gradually lowering it from 100% to 50% of the NMI.
In the NMI 100% and NMI 100%→50% scenarios, eligibility shifts from the bottom 70% of RI to NMI 100% when the RI threshold exceeds 100% of the NMI. Projections indicate that this crossover takes place in 2029 for married households and in 2032 for one-person households. In the NMI 100%→50% scenario, the threshold is then reduced annually by 1.19%p for married households from 2029 and 1.28%p for one-person households from 203.
Figure 5 shows projected recipient shares for the NMI 100% and NMI 100%→50% scenarios. In the NMI 100% scenario, the potential recipient share falls from 70% in 2025 to 57% by 2070. In the NMI 100%→50% scenario, it drops further from 70% to 37% over the same period.
In the NMI 100% and NMI 100%→50% scenarios, the share of Basic Pension recipients is projected to decrease to 57% and 37% of the 65+ population, respectively, by 2070.
Figure 6(A) presents projected fiscal expenditures in present value terms for 2025-2070, based on estimated recipient shares. The baseline scenario with no change projects that annual expenditures will rise from 27 trillion won in 2025 (1.09% of GDP) to 46 trillion won in 2050 (1.48% of GDP) before slightly declining to 43 trillion won in 2070 (1.33% of GDP). In the NMI 100% scenario, annual fiscal savings would average 4.25 trillion won in present value terms, reducing expenditures in 2070 to 35 trillion won (1.08% of GDP), about 19% below the current system. In the NMI 100%→50% scenario, greater fiscal savings would cut annual expenditures by an average of 9.56 trillion won in present value terms, lowering total spending in 2070 to 23 trillion won (0.71% of GDP), roughly 47% below the current system.
Figure 6(B) exhibits total cumulative fiscal expenditures in present value terms from 2025 to 2070. Without reform, cumulative expenditures reach 1,905 trillion won by 2070. In contrast, the NMI 100% scenario reduces them by 195 trillion won (about 10%) to 1,710 trillion won, and the NMI 100%→50% scenario by 440 trillion won (about 23%) to 1,465 trillion won.
These scenarios are projected to reduce fiscal expenditure by approximately 19% and 47%, respectively, compared to the current (baseline) trajectory by 2070.
Adjusting the eligibility threshold to the NMI would reduce longterm fiscal burdens and create fiscal space to raise the base pension amount. This study examines how projected fiscal savings from 2025 to 2027 could increase this amount. With 2% inflation, the 2025 base amount of 343,000 won rises to 350,000 won in 2026. However, under the NMI 100% scenario, it could reach 387,000 won in 2026, and under the NMI 100%→50% scenario, 447,000 won—about 100,000 won above the current level—both without additional fiscal spending.
Per the Ministry of Health and Welfare’s 2024 Pension Reform Plan, the base pension amount will increase to 400,000 won by 2027 for all elderly recipients (bottom RI 70%), starting with low-income seniors in 2026. If indexed to inflation thereafter, cumulative expenditures would rise by 288 trillion won by 2070. Alternatively, maintaining the same overall expenditure while applying the increase to all recipients from 2026 yields 399,000 won. In 2026, under the NMI 100% scenario, the base amount reaches 441,000 won, and under NMI 100%→50%, up to 511,000 won, both without additional costs (Figure 7). Thus, an NMI-tied eligibility threshold enhances pension efficiency, better addressing poverty among low-income older adults.
Linking the eligibility threshold to the NMI enables more efficient poverty alleviation among low-income older adults by utilizing fiscal savings to raise the base pension amount.
Ⅳ. Policy Direction for the Eligibility Reform
The NMI 100% scenario would capture older adults with RI at or below this level. However, as the current bottom 70% RI threshold is already close to the NMI, this scenario would maintain eligibility for existing recipients while limiting future entrants with higher income and assets. The NMI 100% threshold reduces resistance from existing beneficiaries, improving policy acceptability. While it may offer improvements in fiscal sustainability and poverty reduction over the current threshold, the still broad recipient base would limit its effectiveness.
By contrast, the NMI 100%→50% scenario would target support for relatively poor older adults by lowering the threshold closer to the relative poverty line at 50% of the NMI. Savings from a narrower recipient base could increase benefit amounts, enhancing poverty reduction efficiency. However, this approach risks lower policy acceptability, as existing recipients may lose eligibility more rapidly.
Korea’s rapid population aging is projected to raise the elderly dependency ratio—the number of older individuals (65+) per 100 working-age individuals (15-64)—from 27.4 in 2025 to 103.3 in 2070, nearly a 3.6-fold rise. This will also heighten the per capita fiscal burden of the Basic Pension on working-age individuals. The elderly poverty rate remains high despite its improving trend, and elderly poverty is most apparent among older generations excluded from the National Pension.
Therefore, the Basic Pension eligibility threshold should start at or below 100% of the NMI and gradually adjust to 50% or below, narrowing the recipient base from broad social coverage to older adults in relative poverty. A tiered benefit structure based on RI, paired with this targeting, could enhance the efficiency of poverty alleviation. Additionally, reducing the recipient base over time requires expanding the share of older adults who can sustain themselves independently of Basic Pension benefits, particularly those with stable post-retirement income through labor earnings and public and private pensions. This transition needs strengthening a multi-pillar pension system and fostering an age-friendly work environment.
The Basic Pension eligibility threshold should be set at 100% of the NMI and gradually adjusted to 50%, progressively narrowing the recipient base from broad social coverage to older adults in poverty.
In the long term, integrating the Basic Pension and the Basic Livelihood Security Program into a senior-specific minimum income guarantee scheme—a public assistance program ensuring essential living expenses for low-income older adults—warrants consideration. As Basic Pension eligibility shifts to 50% or below of the NMI, its recipient base will shrink while benefits rise, strengthening its safety-net function. However, this shift creates functional overlaps between the Basic Pension and the Basic Livelihood Security Program, increasing complexity in eligibility criteria and benefit calculation. Establishing a unified public assistance system for older adults could improve administrative efficiency and poverty reduction effects in the long run (Choi and Hong, 2021).
However, as the gap between the Basic Pension’s base amount and the National Pension’s average standard income narrows, low-income individuals may lose the incentive to contribute to the National Pension (Choi, 2020). To avoid this unintended consequence, the Basic Pension’s base amount should be increased incrementally, not abruptly or indiscriminately, while ensuring alignment with the maturity of the National Pension and carefully assessing its impact on contribution incentives.
A unified public assistance system for older adults, integrating the National Basic Livelihood Security System and the Basic Pension, should be established in the long term.
However, it is advisable to gradually increase the Basic Pension's base amount while carefully assessing its impact on National Pension contribution incentives.
CONTENTS-
- Ⅰ. Issue
Ⅱ. Elderly Poverty and the Basic Pension: Addressing the Intergenerational Gap
Ⅲ. Eligibility Threshold Reform and Fiscal Projections
Ⅳ. Policy Direction for the Eligibility Reform
- Ⅰ. Issue
- Key related materials
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