Basic pension increase reduces child support by 0.16%, study finds

An increase in South Korea's basic pension payments has a notable impact on family financial dynamics, with a new study revealing that a 1% rise in the pension leads to a 0.16% reduction in financial support from adult children to their elderly parents. This finding suggests that the government's basic pension program is increasingly substituting for private, familial support systems.

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Basic pension increases have a strong crowding-out effect on private transfers.

The research, published in an international academic journal by Professor Park Seung-jun of Daegu University's Department of Economics and Finance, analyzed data from the Korea Elderly Panel Survey between 2017 and 2022. The study employed statistical models to assess the effects of basic pension increases on the labor supply and private financial transfers from children to their parents.

Researchers observed a "strong crowding-out effect" where the basic pension partially replaces traditional family-based support. This indicates a redistribution of economic responsibility from individual households to the state. An analysis of the 2019 basic pension increase further confirmed this trend, showing a 15.5% decrease in private transfers among recipients compared to non-recipients.

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This shows that the basic pension partially replaces traditional family-based support, redistributing economic burden from individual households to the state.

The study also found that the extent of this substitution effect varies by income level. While basic pension increases did not significantly reduce private transfers for couples below 70% of the median income, where such support is often essential for living expenses, they did lead to a noticeable decrease for couples at or above 100% of the median income. The crowding-out effect was strongest at 100% of the median income and diminished at higher income levels, likely because private transfers for higher-income families play a more discretionary role.

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For lower-income households, private transfers are often essential for living expenses, making them less sensitive to basic pension increases.

Interestingly, the study found no significant impact of basic pension increases on the employment status or working hours of the elderly. This is attributed to the persistent need for income among seniors in South Korea's labor market, where the reduction in child support may be offset by the necessity to continue working to maintain their livelihoods and combat poverty.

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In higher-income households, private transfers play a more discretionary role, making the crowding-out effect more pronounced.