Old‐age poverty in a pension latecomer: The impact of basic pension expansions in South Korea

Pension systems and old-age poverty have been studied mainly from comparative perspectives, but causal evidence on the relationship between the two is still rare. This study investigates to what extent implementing non-contributory pensions to a latecomer contributory pension system with a wide coverage gap alleviates old-age poverty, based on the case of recent Basic Pension expansions in South Korea. Using nationally representative household data from 2011 to 2019, we employ a quasi-experimental difference-in-difference design to estimate the impact of policy expansions on a set of outcomes measuring old-age poverty, employment and household income components. The results show that three reforms in 2014, 2018 and 2019 have significantly reduced older people's poverty rate, and they were more effective in reducing extreme poverty. While policy effects after the 2014 expansion are robust in our set of alternative estimations, those after the joint reforms of 2018 and 2019 are less consistent and show signals of a stronger ‘crowding-out’ effect on private transfer income than those after 2014. We found no convincing evidence that non-contributory pensions discourage older people's labour market participation. Our findings contribute to the literature on public pension evaluations by elucidating how non-contributory pensions affect old-age poverty and tackle social and economic inequalities via various channels of income components, while also mitigating endogeneity biases observed in previous studies.