Reform of retirement age

Korea has the most rapidly aging populace in the world. The working age population, or people between the ages of 15 and 64, will start to fall from 2017 and a labor shortage of 2.8 million workers is expected in 2030. Average life expectancy will continue to increase, and the population`s mean age will reach 52.6 in 2040, making Korea the world’s most aged country. Around 100 people of working age must support 16.1 senior citizens, but that figure will shoot up to 80 in 2060. So the younger generation is doomed to struggle in that they will have to support the elderly.

The average life expectancy of a Korean was 80.7 as of late last year. The perceived threshold age for a senior citizen has been elevated, with 70 percent of Koreans thinking that only those age 70 or older should be considered senior citizens. But the Senior Citizens’ Welfare Act considers people 65 or order as elderly. “Young senior citizens" are being produced en masse because Korea borrowed and is still using the standard age of 65 for those eligible to receive pension as set by Germany in the late 19th century, when one could live to be an average of just 49 years. Salaried people retire at age 53 on average in Korea today. They leave their jobs at an age when they can be productive and then take up non-permanent jobs such as school security guard or cleaners or open their own businesses. They often fail and plunge below the poverty line, thus perpetuating a vicious cycle. The poverty rate in Korea among those age 65 or older is 45.1 percent, far higher than the average of 17.1 percent for member countries of the Organization for Economic Cooperation and Development.

The hike of the standard age of a senior citizen to 70 as suggested in an interim report on mid to long-term population management released recently by the government and the revocation of retirement age are in tune with the trends of the era. The U.S. and Australia have banned the retirement age system, in which employers let go people because of their age despite having the will and capacity to work, as a means of stopping age discrimination. Advanced economies such as Britain, France and Japan have introduced and are implementing a system to coincide with the retirement age and the starting age for pension collection to help people avoid an “income cliff.”

If Korea becomes an aged society, it inevitably needs policy measures to increase the retirement age, including extension of the retirement age, re-employment and outright revocation of the retirement age. Labor, management and the government should form a consensus on labor productivity and job flexibility. Under a compensation system based on seniority rather than job performance, workers in their 50s earn two to three times more than entry-level staff. If workers demand a higher retirement age while trying to keep their pay level irrespective of labor productivity, companies will not welcome them. Korea must raise the retirement age in a way that reduces pay for senior workers while maintaining their employment. If one can continue to work at an advanced age, he or she will feel happier even if earning half of what he or she earned before. If companies can use older staff who are more skilled and have stronger loyalty for relatively lower wages, this can also optimize efficient management.