National Pension Research Institute analyzes spending patterns of Koreans aged 56–70, finding household consumption gap narrows slightly after pension payments begin

[123RF]
[123RF]

South Korea's national pension does more than guarantee basic retirement income — it also helps reduce consumption inequality within older generations, with the effect most pronounced among low-asset households, according to new empirical research.

A report released Friday by the National Pension Research Institute, titled "Does the National Pension Alleviate Consumption Inequality? An Analysis of Spending Patterns Among Middle-Aged and Older Adults," found that people in their mid-50s to early 70s often face a sharp income cliff when they leave the workforce.

Public pension benefits — including the national pension and the basic pension — help cushion that drop by boosting disposable income and allowing retirees to sustain their spending, the report found.

Controlling for other variables, a 1 percent increase in old-age pension receipts was associated with an average 0.072 percent rise in real consumption — 0.074 percent for men and 0.062 percent for women.

Spending on non-durable essentials such as food, dining out, daily living costs and residential expenses rose 0.076 percent for every 1 percent increase in pension income, confirming that most pension receipts go toward maintaining basic day-to-day life in retirement.

The consumption boost varied significantly by household asset level. Pension income played a relatively larger role in driving spending among low-asset households than among wealthier ones.

Among households in the bottom asset decile, a 1 percent increase in old-age pension receipts lifted essential non-durable spending by 0.105 percent, compared with roughly 0.06 percent for higher-asset groups.

An analysis combining administrative records with credit card transaction data further confirmed that households with fewer assets showed a significantly larger increase in card spending when pension payments rose.

The national pension also narrowed the consumption gap within the middle-aged and older population, producing a measurable policy effect on inequality within that cohort.

Tracking shifts in consumption percentile rankings around the time pension payments begin, the researchers found that the spending boost at the onset of pension receipt was relatively larger for lower-asset households. As a result, the consumption percentile of those in the bottom asset decile rose, and the gap between that group and the next tier above it narrowed slightly.

"The national pension is serving as a social breakwater that prevents a sharp consumption collapse among retirees," the report said, recommending that policymakers "seek ways to strengthen retirement income security and reinforce the pension's income redistribution function, within limits that do not compromise its fiscal sustainability."


thlee@heraldcorp.com