Demographic change requires far-reaching reforms.

The International Social Security Association (ISSA) published a report about demography-based pension reforms in East Asia on 16th April. The East Asian countries - which include China, Japan, Mongolia and South Korea - are facing major challenges due to the rapid ageing of their populations. Far-reaching reforms have been agreed upon in order to ensure long-term financial sustainability and to reduce the limits of the relevant pension systems.

Current figures illustrate the dimension of the problem

According to the report, the proportion of over-65s in the East Asian regions will continue to increase. In South Korea, this proportion could rise to 43.7 per cent by 2060, and in Japan to around 37.4 per cent. At the same time, the old-age dependency ratio - that is the ratio of older people to the labour force - will more than double in these countries. An increase from 23.6 per cent to 95.4 per cent is expected to be seen in South Korea by 2060. In comparison around a third of the population in Germany will be over 65 years old in 2060 (around 32 per cent), and in France, it will be just under 29 per cent.

Similarities between the relevant reforms

China, Japan, Mongolia and South Korea have responded to these challenges and they are securing their systems through implementing appropriate reforms that are in line with their respective economic and political frameworks. A similar approach can be seen in the implementation of these reforms, such as the gradual increase in the retirement age, flexibility in the organising of retirement beyond the age limits and extending the insurance cover for specific groups of people. However, strategic differences can also be identified here.

Strategic differences and approaches

China is also focussing on flexible early retirement schemes and the introduction of a funded private pension scheme. A voluntary, tax-benefiting pension scheme was also introduced in 2022 to improve private pension provision.

Japan has reformed its social security protection for part-time employees and is continuing with its existing automatic pension adjustment system (macroeconomic indexation mechanism). Gainful employment beyond the age of 65 is simultaneously encouraged. It is now possible to defer retirement until the age of 75.

South Korea has combined the gradual increase in contribution rates with an increased, state-guaranteed income replacement rate of 43 per cent. Enhanced pension credits for childcare and military service were simultaneously introduced as well as reduction in contribution by low-income insured people.

An information and communications technology-based system (ICT) was introduced In Mongolia to increase efficiency. This digital tool enables better monitoring of contribution payments and it also reduced losses in the insurance funds. Employed pensioners remain contributors and new workforce employees are now subject to a defined contribution model.

Conclusion and a look at Europe

The reforms in East Asia provide starting points for how national pension systems can be made sustainable over the long term. There are clear parallels to efforts being made within the EU, especially with regard to securing pensions, promoting additional retirement provision and promoting employment beyond the retirement age. This shows that: the ageing of society is a global challenge. Methods for safeguarding pension systems and adapting them to demographic changes are key issues that are increasingly being discussed not only in Europe, but also worldwide and they offer potential for mutual learning.