Lifting retirement age through labor reform

But raising the retirement age should be accompanied by labor reform.

Those aged 60 and older and still employed numbered 6.75 million last month, beating those in their 50s for the first time in taking up the largest share in the employment data. The bulky weight in employment reflects the country’s aging.

South Korea officially becomes a superaged society next year with the share of those aged 65 and older exceeding 20 percent of its population. Those passing the retirement age wish to continue working partly because they are not sufficiently insured for old-age comforts and lack financial stability.

Korea tops the elderly poverty rate among OECD members. Its population has been thinning from decades of a birthrate hovering below 1 percent, undermining growth potential in the economy. When seniors work longer, they can help offset the reduction in the work force and ameliorate their financial insecurity.

In his inaugural speech for an extended term, Lee Joong-keun, chairman of the Korean Senior Citizens Association, proposed the country lift the statutory senior age incrementally from the current 65 to 75 over the next 10 years. He is suggesting the elderly put off social benefits such as basic pension or discounts in public systems in exchange for longer employment through deferred retirement or a wage peak system.

He is echoing the idea of the state think thank Korea Development Institute (KDI), which proposes raising the threshold for legal old age by a year across 10 years from 2025. Currently the old-age threshold is based on the Senior Citizens Welfare Act enacted in 1981. A guideline set 43 years ago cannot meet today’s standards when the life expectancy has stretched to 83 from 66. Today’s elders are healthier, more educated, skilled and willing to work.

The time has come for a social discussion on raising the old-age threshold. Fiscal sustainability also can be enhanced by reducing the cost for senior welfare programs. But policymakers must be mindful so as not to neglect the elderly who are vulnerable.

Lifting the retirement age should be discussed at the same time. The starting age of receiving national pension has gone up to 63 and will reach 65 in 2033. People would have to work longer until they pick up the pension check. The Ministry of Interior and Safety is incrementally lifting the retirement age for 2,300 public employees to 65. The public-sector changes should give impetus to having a social debate on the issue.

But raising the retirement age should be accompanied by labor reform. Under the current seniority-based pay system, only the employees of big and public companies with powerful unions will benefit from their prolonged employment. The hike in the retirement age must not work against youth employment.

Instead of legalizing the retirement age, Korea can benchmark Japan which leaves the decision up to individual.