How to Improve Means Testing for Social Security Benefits in Korea

Abstract

The effect of social security system has closely related with the means test limits, especially in those countries where means test based benefits take major part of whole social benefits. The aim of this research is to suggest how to reform the asset test ? asset limits and how to apply asset test criteria, based on the analysis of joint distribution of income and asset of low income class. The main problems of asset test in Korean Social Security System can be summarized as follow: Most of social benefit based on means test has asset test regardless of its coverage. Most of benefits with asset test use asset-income conversion method. And the level of basic asset deduction which plays as substantial asset limit is so low that about half of the poor can not meet that criteria. Because the current income-asset conversion system has some inefficiency problem and logical inconsistency, and play almost no practical role, it needs to be replaced with dual (income and asset) cut-off system. If that change cannot be expected in near future, some policy measure should be taken: Conversion rates, varying with asset types, should be simplified. Housing assets- own house and deposits of rented house ? should be taken separately with other asset, and more generous limit should be applied to them. Setting different asset limits according to income zone or beneficiary years, for example, could be an alternative for conversion rule. In case that the amount of benefit varies with recipients asset level, it is better to link asset level with payments than to convert asset to income. In setting asset limit, the size of household should be took into account. And indexing asset limit to major economic measure such as CPI is required to avoid lack in coverage of social benefits.