Raising the retirement age from the current 60 to 65 will require an additional 15.9 trillion won per year from employers, a private think tank said Monday, suggesting that extra measures are needed to lower the financial burden for companies.
The Korea Economic Research Institute, under the country’s top business lobby Federation of Korean Industries, said in a report that wages will account for 14.4 trillion won while social insurance contributions would account for the remaining 1.5 trillion won.
Corporate costs arising from a five-year extension of the age at which firms can require mandatory retirement is based on the assumption that workers aged between 60 and 64 will see their salaries fall by an average of 2.5 percent per year under the wage peak system.
If employers increase the annual wage cut to 5 percent, they would reduce the costs of extending the retirement age by around 2.7 trillion won per year, which could allow them to hire 86,000 young workers.
The wage peak system, currently in place at public organizations and at some big corporations, saves costs for employers by gradually cutting salaries after a certain age in exchange for extending the retirement age. Firms can set their own rates of reduction, and the periods over which they apply, though KERI assumed it applied over five years in both the before and after scenarios.
The wage peak system also reduces severance payments, which are based on the average wage of the last three months from retirement.
“To lower the burden on employers from extending the retirement age, reforms in the current wage system are required, such as determining salary levels by the type of jobs or expanding the wage peak system,” said KERI researcher Yoo Jin-sung.
“In the age of low birth rates and aging population, all related parties should be working together to simultaneously achieve job security, strengthened corporate competitiveness and continued economic growth.”
The legal retirement age was last revised in 2017 from then 58 to 60.
The government has been eyeing a further delay in retirement as a way to offset the expected fall in the country’s working age population caused by persistently low birthrates.
That idea, however, has been met with worries from employers over costs, as well as the potential negative impact on younger generations’ employment chances.
According to Statistics Korea, South Korea’s population is projected to decline to 39 million in 2067 while people aged 65 years or older account for 46.7 percent of the total.
By Ko Jun-tae (email@example.com