raising the retirement age to 65: a 'survival act' for the income cliff or a labor market upheaval?

the debate on raising the legal retirement age from 60 to 65 is gaining momentum as the country enters an ultra-elderly society. the government and the ruling party have formed a special committee with a strong goal of passing a bill to extend the retirement age through an amendment to the Employment of Senior Citizens Act within the year. this debate goes beyond simply increasing the length of the working years, but is a huge social issue that requires changes to the survival of individuals in old age, jobs for the younger generation, and the overall structure of the Korean economy.

this report provides an in-depth analysis of the inevitable background of the retirement age extension, the sharp points of conflict between generations and labor and management, and the direction of sustainable labor market change we should take.

1. raising the retirement age to 65, why now?

1.1. An ultra-elderly society and an inevitable labor shortage

south Korea officially entered an ultra-elderly society late last year, with the proportion of people aged 65 and over exceeding 20%. the sharp decline in the working-age population is leading to a severe labor shortage that will reduce the vitality of the national economy. in the face of this demographic crisis, governments still see the economic imperative of keeping healthy, skilled people in their 60s in the labor market longer.

the skills and good work attitudes of the older workforce are such a valuable asset that they are often cited as the top reason for companies to rehire retirees. it is a national loss to force these skilled workers out of the workforce because of the physical barrier of the statutory retirement age of 60, which is why an extension of the retirement age to 65 is being discussed as a way to secure jobs for older workers, which is essential to maintain productivity in an ultra-aging society. The rush by the government and ruling coalition to enact legislation within the year, despite the fact that the extension of the retirement age has not been met with sufficient labor-management consensus, shows that policy pressure is building that the discussion can no longer be delayed in the face of an accelerating aging clock.

1.2. The fear of five years in retirement: the reality of the 'income cliff'

the strongest driver for raising the retirement age is to address the financial insecurity of older people in their later years. the current legal retirement age of 60 does not coincide with the state pension age (currently 63 and set to rise to 65 in 2033), creating an income crevasse of at least three years and up to five years.

in this income crevasse, the 60-64 age group, more than half of the population has no pension income at all, with only 42.7% of them receiving a pension. this creates a structural poverty trap, where older people are left without a livelihood until they reach full retirement age and start receiving their state pension. in fact, to meet their living expenses during this period, the proportion of people aged 60 and over taking out subsistence loans from non-bank financial institutions, such as insurance companies, is growing at the steepest rate of any age group (7.5% compound annual growth rate).

south Korea already has the highest elderly poverty rate in the OECD. aligning the age of eligibility for national pensions with the length of employment by raising the retirement age to 65 would be the most obvious and direct way to expand the social safety net to ensure individuals' economic security and prevent poverty in old age.

2. terms of agreement: Raising the retirement age to 65 is not possible without a wage reform

2.1. What is the truth behind the youth job loss debate?

as soon as the discussion of raising the retirement age begins in earnest, one of the biggest conflicting issues is the issue of youth job loss. the business community strongly argues that if the legal retirement age is increased while maintaining the current seniority-based wage system (seniority system), companies will be forced to reduce new hires (youth jobs) due to increased labor costs. our results also show that for every one older worker, youth hiring decreases by 0.4 to 1.5, suggesting that a careful approach is needed when designing retirement age extension policies.there is also concern that this reduction in employment may be more pronounced in larger companies, which are more likely to favor younger workers.

labor, on the other hand, criticizes this concern as a framing that promotes "generational conflict.labor points out that less than 20% of all full-time workers actually reach the retirement age of 60, and that the vast majority of workers leave the labor market in their early to mid-50s due to restructuring, health issues, etc. ignoring this structural problem and blaming only the raising of the retirement age for the deterioration of youth employment, they argue, distorts reality.

at the end of the day, the argument for raising the retirement age lies in the structural reform of the dual labor market: the seniority-based wage system.under the current wage system, the labor costs of older workers are inflated, maximizing the burden on companies, which inevitably leads to a reduction in new hiring. Therefore, in order for the 65-year-old retirement age to be successful and to minimize the side effects of youth job losses, a social compromise is urgently needed to reform the wage system before or at the same time.

2.2. Moving beyond seniority to job value

the business community is strongly calling for the introduction of job-based pay as a key alternative to ease labor cost burdens and increase productivity.job-based pay is a system that sets wages based on the difficulty, responsibility, and value of a job rather than seniority.

however, the adoption of job-based pay in the Korean labor market is still in its infancy. even in the public sector, only 1% of public organizations have adopted job-based pay, and even in those that have, the culture of seniority still plays a strong role in actual operations, which has the opposite effect of making seniority the main criterion for evaluation rather than job performance.this has led to dissatisfaction among younger employees, such as the MZ generation.

due to these practical difficulties, the management community is proposing a more realistic alternative to a uniform statutory retirement age extension: a continued employment system (rehiring) that allows workers to be rehired after retirement with adjustments to their wages based on their wishes.re-employment is seen as a compromise that gives companies flexibility while giving older workers the opportunity to continue working.

key Issues in the Retirement Age Extension Debate (Labor and Management Differences)

issue arealabor (in favor of raising the retirement age)business (requires wage reform first) form of retirement age extension maintaining the existing wage system and gradually raising the age to 65 labor opposes uniform retirement age increase, favors rehiring/abolishing retirement age wage system reform should be approached as a separate issue from retirement age extension abolish annual benefits and introduce a job-based pay system impact on youth employment 80% leave the workforce before retirement age, criticizing framing as conflict-promoting increased labor costs for seniors will inevitably reduce youth recruitment

3. overseas is already on the way: countries with continuous employment and abolition of retirement age

the global aging population is already a reality, and developed countries are already adapting to labor market changes through changes in retirement age-related systems.

3.1. Japan's choice: wage flexibility and commitment to hiring at age 70

japan, which shares many cultural and economic similarities with South Korea, maintains a legal retirement age of 60, but operates a continued employment system (for rehire) that requires companies to hire workers until age 65 if they want to. it further obligates companies to strive to provide workers with the opportunity to work until age 70.

flexible wage adjustments are key to the Japanese model. according to a survey by the Korea Labor Research Institute, 64% of Korean companies have a rehired workforce, and in the case of large companies in particular, the wage level of rehired workers is usually adjusted to 60-80% of the existing wage. these wage adjustments are seen as a compromise that actually achieves the goal of employment security for the elderly while easing the burden of labor costs for companies. in the event of a delay in reaching a social consensus on legislating a 65-year retirement age, a Japanese-style continued employment system with wage flexibility could emerge as a realistic short-term alternative.

3.2. Germany's long-term roadmap: phasing in a 67 retirement age

among European countries, Germany is in the midst of a reform that will phase in a statutory pension age of 67 by 2029.the German example shows that raising the retirement age is not just a simple law change, but requires a thorough pension reform and social debate over a long period of time. many other countries, including the United States, United Kingdom, Canada, and Denmark, have banned age-based retirement in the private sector, effectively abolishing the retirement age and allowing older workers maximum job autonomy. the examples of these countries clearly demonstrate that the shift to age-inclusive labor markets is a global trend.

4. designing a successful second career and FAQs

4.1. Survival strategies for skilled workers after retirement age

whether the legal retirement age is extended later or sooner, the most important factor in helping individuals overcome the income cliff and successfully design a second career is expertise.

as the main reason companies rehire older workers is because of their "skills and good work attitude," having an expertise that is irreplaceable in the marketplace is the surest way to eliminate retirement income insecurity. to avoid being stuck in a blue-collar job in retirement, it's essential to deepen existing, peer-recognized expertise, or to gain new specializations, such as by obtaining certifications.with discussions about raising the retirement age and labor market changes, continuous learning and career management throughout the life cycle is more important than ever.

4.3. Expert FAQ: Q&A on the Employment of Older Workers Act Amendment

Q1. When will the Employment Act for the Elderly be revised?

the government and the ruling party have proposed and promoted a goal to complete the legislation to extend the retirement age to 65 by the end of the year through the revision of the Employment of Senior Citizens Act. however, there are observations that the actual legislation is likely to be pushed back to next year if the differences between labor and management are not narrowed, as the bill to extend the retirement age involves complex interests such as the business community's demand to revise the wage system and concerns about youth employment contraction.

Q2. Will wages remain the same if the retirement age is increased?

since the business community is opposed to raising the retirement age to 65 while maintaining the seniority-based wage system, it is likely that the wage system will be reorganized (switching to a job-based wage system), a wage peak system, or wage adjustments for rehiring will inevitably be involved. this reality is reflected in surveys that show that in large organizations, workers rehired after retirement age are often paid 60-80% of their previous wages.

Q3. Is there any government support during the income cliff?

under current law, it is not possible to provide direct pension payments for the income gap (60-64 years old) that occurs before the state pension age of 63 (65 in the future).however, the government is working to expand income support opportunities and jobs for older workers indirectly, such as by providing public jobs for people in their 60s and reemployment training programs.

Q4. What are the advantages of countries that have abolished the retirement age?

countries that have effectively abolished the retirement age, such as the U.S., U.K., and Canada, cannot fire workers because of their age. This allows them to make full use of the skilled labor of older workers, and the elimination of the retirement age has led to labor market changes that have increased individual responsibility and the importance of lifelong professional development.

conclusion: Social compromise is the key to raising the retirement age

the discussion of extending the retirement age is an unavoidable policy challenge to address the income cliff and national labor shortage amidst the huge wave of ultra-elderly society. in order to usher in the age of 65 through the amendment of the Senior Citizens' Employment Act, the legislation must be carefully designed to ensure that it does not become a "zero-sum game" at the expense of youth employment. When preceded by a social compromise that revamps the seniority-based wage system to focus on job value, the retirement age extension legislation will truly be a turning point in the labor market that will benefit all generations and eliminate old-age anxiety.

is your retirement plan adequately prepared for this massive labor market shift? share your thoughts on the retirement age debate and how you're preparing in the comments. don't miss our next analysis of the future of the labor market by subscribing to our newsletter.