Determinants of Households’ Intention to Take Out or Convert to a Trust-Type Home Pension: Evidence from South Korea

ABSTRACT

This study analyzes the determinants of Korean households’ intention to take out a trust-type home pension (Korean reverse mortgage) or switch from a collateral-type home pension to a trust-type home pension. Using a proportional odds logit model, we analyzed 2018 survey data on home pension demand. Trust-type home pension enrollment is most significantly influenced by homeowners’ relationship with children after enrollment, followed by homeowners’ need for retirement-related financial education. The presence (or absence) of a homeowner’s spouse most significantly influenced conversion intention, affirming that for homeowners with a spouse, their priority in pension selection was securing their spouse’s future entitlement.

KEYWORDS:

• Trust-type home pension
• pension entitlement
• proportional odds logit model

JEL:

• D14
• H55

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. South Korea’s gross pension replacement rate was only 31.2% in 2018, which is lower than the average of 51.8% for the Organisation for Economic Co-operation and Development (OECD) countries. South Korea’s older adult poverty rate has been the highest among OECD countries, recording a rate of 43.4% as of 2016 (OECD 2021).

2. Previously, the age limit for married couples enrolling in a home pension was ≥65; this was reduced to ≥ 60 in 2016. In 2020, the limit was adjusted to allow enrollment if one member of the couple is ≥55. Similarly, when registered eligible housing was introduced, the market value of the house was limited to ≤ 600 million won. However, in 2008, the market value limit was increased to ≤ 900 million won, and the official price limit reached 900 million won in 2020 (i.e., market value of approximately 1.2 to 1.3 billion won).

3. The KHFC conducted this survey to assess home pension decision-making in terms of system improvement-related policies. The survey captured housing ownership and housing conditions among elderly households with and without a home pension, their economic and living conditions, and their awareness of home pensions.

4. For a more detailed discussion of the home pension system in South Korea, see the Korea Housing Finance Corporation website: https://www.hf.go.kr/ehf/sub03/sub01_01.do.