‘Retirement age of 65’, if you try to eat quickly, you will get into trouble [Daeryun’s Biz law forum]

An alternative to fill the 5-year gap in receiving pension benefits
If you miss the connection with wages, jobs, re-employment, and pension
Concerns over the recurrence of confusion when the wage peak system was introduced
It must be supported by elaborate design such as wage system.

Mr. A, born in 1969, will have to wait 5 years to receive the national pension when he retires at the retirement age (60 years old) in 2029. This is a time when savings are not enough and re-employment is not easy. Korea has already entered a super-aging society, with the proportion of the population over 65 years old exceeding 20%, and the total birth rate remains at 0.7, making a decline in the labor force a reality. On the other hand, the age for receiving national pension is gradually increasing until the age of 65 in 2033. This is why there is a structural income gap of about 5 years between the legal retirement age of 60 and pension receipt.

Extending the retirement age is presented as a means to fill this gap while utilizing skilled workers longer and easing the financial burden of pensions. However, there are many concerns about decreased youth employment, increased labor cost burden, and deepening generational conflict. Korean society is now facing a huge question: ‘How should we prepare for the retirement age of 65?’ There is considerable consensus on the direction of increasing the retirement age. However, if we do not sufficiently prepare for the increased burden on companies, a cautious legislative approach seems necessary as the confusion experienced when the peak wage system was introduced in 2010 could be repeated.

The government aims to enact legislation within the year and proposes three proposals.

On the 2nd, the Democratic Party of Korea's Special Committee on Retirement Age Extension presented three scenarios to labor and management to gradually raise the retirement age from the current 60 to 65. All three plans are the same in terms of extending the retirement age, but there are differences in the speed and stage composition.

Plan 1 is a relatively quick plan that raises the retirement age by one year every two years from 2028 to 2036, reaching age 65 in eight years. Plan 2 is a compromise that raises the rate by one year every three years for the 61-62 age group and one year every two years for the 63-64 age group over 10 years from 2029 to 2039. The last three plans are to raise it by one year every three years for 12 years from 2029 to 2041 to reach age 65 in the most gradual manner.

All three plans combine raising the retirement age with re-employment of retirees (re-employment 1-2 years after retirement). This is a plan to adjust the manpower gap before and after retirement age and the burden on companies. The ruling party aims to enact legislation within the year, but the final bill is expected to continue to be adjusted between the labor community's demands for speed and the management community's concerns.

To avoid following the footsteps of the peak wage system of 15 years ago...

It is difficult to deny the necessity of extending the retirement age. In a reality where a super-aging society and pension starting age are rising, neglecting the income gap after retirement at age 60 causes great anxiety for both individuals and society. As the number of healthy older people who can work longer increases, the existing structure of forcing skilled workers to leave is also criticized as being irrational in terms of economic efficiency.

However, just as important as ‘how much to raise the retirement age’ is ‘what wage and employment structure to raise it in combination with’. If the retirement age is raised hastily and the connection with wages, jobs, re-employment, and pensions is missed, side effects such as a decline in youth employment, a sharp increase in labor costs, and conflicts between the elderly and young generations may shake up the discussion on extending the retirement age. When the legal retirement age was raised to 60 due to the revision of the Elderly Employment Act in 2013, many companies introduced the peak wage system to ease the burden of labor costs and maintain employment. At the time, the law encouraged reform of the wage system in accordance with the extension of retirement age and the introduction of a peak wage system, but did not provide specific guidelines on the extent of wage reduction, target measures, and criteria for determining age discrimination.

This gap was later filled by the courts. In the 2022 retirement age maintenance wage peak system case, the Supreme Court presented the degree of wage reduction, the existence and substance of the target measures, and the use of resources saved by the wage peak system as criteria for judging whether it constitutes 'age discrimination without reasonable grounds'. Since then, a series of rulings have been made by lower courts ruling that the wage peak system introduced by companies is invalid. Recently, it was even judged that the retirement age peak wage system cannot justify a drastic reduction in wages just because the retirement age has increased, and that it is invalid if excessive wage adjustments are combined with insufficient target measures.

As a result of leaving it up to field autonomy without setting clear standards at the legislative stage, the system introduced based on social agreement between labor and management was belatedly invalidated by the court. Companies have taken on the obligation to pay large amounts of wages, going back to the past. This creates unpredictability for both workers and companies, and is also an undesirable result in terms of legal stability and trust protection principles.

Clear guidelines such as wage system are needed.

What we need to be most wary of in this discussion on the retirement age of 65 is hasty legislation that focuses only on the speed of achieving 65. In addition to raising the retirement age, legislators must hold specific and forward-looking discussions on at least the following issues.

First, with regard to the corporate wage system, separate legislation or clear guidelines are needed on how to change the seniority-based wage system to one centered on job and performance, and what systems other than the peak wage system will be recognized as necessary measures in response to the extension of retirement age. It also seems necessary to clarify procedures related to retirement age and wage reform and standards for designing the wage system to prevent similar disputes over the peak wage system from recurring.

Extending the retirement age is an inevitable task to increase the sustainability of an aging society. However, if it is promoted in a way that undermines legal stability, it will diminish companies' mid- to long-term manpower and investment plans, which may ultimately backfire on jobs and growth. Only when elaborate design is supported from the legislative stage will the '65-year retirement age' be able to be established on social trust.

Bang In-tae, attorney at Daeryun Law Firm (intae.bang@gmail.com)

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'65-year-old retirement age', if you try to eat quickly, you will get into trouble [Daeryun's Biz law forum] (Shortcut)