We Must Reform the Bad Policies That Reduce Seniors’ Wealth

There is an old saying, “Nosoejilta (老衰疾打).” It means that when one reaches old age, physical decline is inevitably accompanied by illness. In Korea, however, growing old does not only bring illness; it also brings a structure in which economic hardship deepens. Politicians and the government are creating the illusion that they can take responsibility for individuals’ lives. Meanwhile, the current system undermines people’s will to accumulate wealth and even strips away the assets they would need in old age. This is precisely why so many fail to attain economic freedom in later life.

The government cannot take responsibility for each individual’s retirement. There is the National Pension and various welfare programs by sector, but these are merely supplementary. The fundamental solution to covering living expenses in old age is for individuals to manage their own assets and prepare for retirement themselves.

The current tax system effectively forces people to lose the assets they need for retirement, making life in old age more difficult. Taxes that obstruct the accumulation of retirement assets increase life’s instability. In the process of building wealth, all kinds of taxes impose double and triple burdens. Even though taxes have already been paid when income is earned, more taxes are levied again as assets are accumulated. Taxes are imposed when assets are purchased, held, and disposed of, and even when they are transferred into other forms of property, taxation continues.

Taxes on real estate in particular are at a confiscatory level. Real estate is one of the most common forms of wealth that people hold as retirement savings, yet the taxes imposed on it are severe. In fact, considering the role of property in securing one’s life in old age, the tax burden on real estate should be very low. Taxes arising in the process of acquiring, holding, and transferring real estate should be minimal.

The burden of inheritance and gift taxes—among the harshest in the world—especially encourages people not to accumulate assets but instead to spend them away or dispose of them before reaching old age. Worse still, when the government tries to induce people to sell their real estate by promising cheap rental housing, it erodes the very desire to own property and conditions people to depend on the state. Those who fall into this trap are left with no choice but to rely on others, walking the path of “economic slavery.”

Excessive expectations and illusions about the National Pension should be treated with caution. At present, the National Pension is designed only to help maintain a minimum standard of living. Moreover, with the population structure turning into an inverted pyramid, the sustainability of the pension itself is being called into question. It should be converted into an individual account system to encourage people to build up more retirement savings on their own.

To guarantee economic freedom and stability in old age, the current tax regime and institutions that shrink personal wealth must be boldly reformed. Society as a whole must create an environment in which individuals can accumulate assets, and the tax system must be overhauled so that people can prepare for retirement. Establishing institutions that help individuals take responsibility for their own lives is the essence of true reform.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 노년 재산 줄이는 나쁜 제도를 개혁해야

Author: Sung-no Choi

Date: 2024-10-04

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26894