[Editorial] Raising the Retirement Age

The Korea Electric Power Corp. will raise its retirement age for workers from 58 to 60. The move by the country’s largest state-run company seeks to offset expected losses due to the introduction of a wage peak system, under which pay declines when a worker reaches a certain age. The welcome decision will prevent shocks that could ensue from a mass retirement. Retaining and getting the most out of highly skilled and experienced workers will significantly boost national competitiveness.

Baby boomers born between 1955 and 1963 after the end of the Korean War will soon retire. Given that the average retirement age for white-collar workers is the mid-50s, most baby boomers have probably retired by now. The retirement of an estimated 7.12 million baby boomers over a short period of time, however, could cause serious economic and social repercussions.

Average life expectancy in Korea has risen markedly thanks to the advancement of medical technology. So retirement for a worker who hits his or her mid-50s means spending more than 20 years without a job. Retirees with no fixed income will face great economic strain. The burden of those who retire before reaching the eligible age to receive pension benefits will be enormous. The eligible age for pension benefits will rise one year every five years from 2013. So raising the retirement age is necessary to match retirement with when a worker begins receiving pension.

Japan’s baby boomers began retiring earlier than those in Korea. Tokyo then revised a law requiring all companies to extend the retirement age to 65 by 2013. The law took effect starting from 2006. Korea has set the retirement age at 60 under a law banning age discrimination at workplaces and promoting employment of the elderly, but it is not binding.

Chinese companies are laying the groundwork for rapid economic growth by employing Korean workers who retired early. Instead of letting skilled workers retire, Korean companies must make good use of the workers’ experience. For the electric company, the higher retirement age was probably inevitable since experienced staff is needed to build and operate nuclear power plants abroad, such as in the United Arab Emirates.

One negative side effect of the higher retirement age could be a tighter job market. State-owned organizations might hire less entry-level workers if they keep existing staff longer. A lesson can be learned, however, from the Korea Advanced Institute of Science and Technology and Ulsan National Institute of Science and Technology. The two schools raised the retirement age from 65 to 70 for professors with stellar achievements. To avoid aggravating youth unemployment, state-run companies should gradually raise the retirement age starting with skilled engineers.