Gyeongbokgung Palace in Seoul , South KoreaTieataopoon/Getty Images/iStockphoto
South Korea will redirect financial support from new mom and pop stores and restaurants to discourage retirees from pouring their life's savings into enterprises that often collapse and leave them destitute.
With almost two-thirds of startups failing within three years and 69 per cent of state-lending for small business going into the crowded market for eateries and grocery outlets, the government will begin channeling low-cost loans to "promising businesses," six ministries said in a joint statement today.
South Korea has an elderly poverty rate of 49 per cent, almost four times the OECD average, and a pension system that started too late to support many of the generation that built Asia's fourth-largest economy. With life expectancy of 81 years and workers typically forced from companies and into retirement in their mid fifties, many move from salaried employment to self-funded ventures without any training.
"Struggling startup businesses are one of the biggest structural problems in our economy," Finance Minister Choi Kyung Hwan said at meeting with ruling party lawmakers today. "We plan to minimize the number of retirees turning to startups."
President Park Geun Hye last year scaled back aid she had pledged to pensioners as declining revenue restricted spending options. While the finance ministry has since forecast economic growth to accelerate to 3.7 per cent in the 12 months through December, from 3 per cent in 2013, the fiscal deficit is projected to widen next year.
Promising areas for new small businesses include 3-D printing and fermented organic food, according to the statement, which didn't provide further examples.
Future Funding
The total amount of financing available from the government for startups this year is 200 billion won ($190-million) and will be unchanged in 2015, according to the Small and Medium Business Administration.
The agency will also manage a new 2 trillion won fund starting next year to increase public car parks near traditional markets and shopping areas, and to boost vocational training and consulting services, Choi said.
Startups account for 27 per cent of workers in South Korea, almost double the average among the 34 members of the Organization for Economic Cooperation and Development, finance ministry data shows.
The country has about 11 restaurants per 1,000 people, 18 times more than in the U.S., today's statement shows. It has almost 12 small retailers per 1,000 people, nine times more than in the U.S.
'Failure Rate'
"The high failure rate can't be changed overnight," said Jean Lim, a Seoul-based economist at the Korea Institute of Finance and a former Bank of Korea official. "If the government can't stop them going into these businesses, it needs to teach people skills like marketing and accounting."
The government will increase state-backed vocational courses for promising businesses by 60 per cent between now and 2017, it said in the statement. It will also boost subsidies next year for 7,800 workers who face salary cuts from their employers as they near retirement, according to the statement.
While a legal retirement age for large employers has been set at 60, starting in 2016, South Koreans on average are forced out of companies at 53 but would like to keep working until the age of 72, according to the finance ministry.
The nation's pension system didn't begin until 1988 and only covered all workers from 1999. It wasn't made retroactive to those working before its inception, and people covered at the tail end of their careers qualified for limited payouts. A basic minimum payout for the elderly was added in 2008.
The government estimates 200,000 baby boomers to retire every year until 2021. They will on average receive about 420,000 won of monthly benefits, according to finance ministry.