Korea’s Basic Old-Age Pension and its poverty reduction effects

Abstract

Wankyo Chung estimates the poverty reduction effect of the Basic Old-Age Pension (BOAP) in Korea. More specifically, he examines the poverty reduction effects of the direct income transfer through the BOAP to the elderly. Chung begins with an overview of the National Pension Scheme (NPS) and the BOAP. The NPS, initiated in 1988, was expanded to universal coverage in 1999. But by 2009 only about 28 percent of the elderly were recipients, because it had been introduced recently. Due to the low coverage, an additional pension scheme, the BOAP was introduced in January 2008. The purpose of the BOAP is to help to alleviate poverty among the elderly, but the amount of the benefit is small: only 5 percent of the three-year average earnings of everyone insured by the NPS. The author conducts statistical analysis to examine absolute poverty, using the minimum cost of living as the poverty line. Both the poverty rate and the poverty gap index are used to estimate the poverty reduction effect on the elderly resulting from the newly introduced BOAP.