🚨 Continuous Employment Obligation System: Retirement Age Extension and Senior Employment Security

Today Korean Social News | 2025.05.23

📌 Age 65 Continuous Employment Obligation System: Concerns About Dual Retirement Structure... Need for Legal Retirement Age Extension Raised

💬 Labor groups and experts have argued that legal retirement age extension is needed regarding the continuous employment obligation system up to age 65 proposed by the Economic, Social & Labor Council. They worry that this system could make employment condition gaps worse depending on company size and whether there's a labor union. They emphasize that making the retirement age 65 by law would be more effective. Currently, Korea's legal retirement age is 60, but because of rapid aging and elderly poverty problems, extending retirement age or continuous employment plans have become urgent issues.

Summary

• The continuous employment obligation system requires companies to keep employing workers for a certain period after retirement age.
• Making companies employ workers until age 65 is being discussed, but concerns about gaps between companies are raised.
• This is getting attention as a policy solution to solve elderly poverty and use skilled workers in an aging society.

1️⃣ Definition

Continuous employment obligation system means a system that requires companies to keep employing workers for a certain period even after they reach retirement age. Simply put, it means requiring companies to employ workers for 5 more years until age 65 after they reach the retirement age of 60.

This system is being discussed to solve elderly poverty and better use skilled workers in an aging society. It aims to provide job security for workers and improve the efficient use of human resources in society.

💡 Why is this important?

• It reduces elderly poverty problems caused by rapid aging.
• It allows continued use of skilled workers with experience and skills.
• It provides job security and more time for workers to prepare for retirement.
• It prevents income gaps until the National Pension starting age (65).

2️⃣ Main Content and Features of the Continuous Employment Obligation System

📕 Specific Content of the System

• The continuous employment obligation system can work in various ways. The main methods are:

  • Re-employment method: Making a new employment contract after retirement and employing again.
  • Retirement extension method: Extending the existing employment contract to delay retirement.
  • Working hours adjustment: Continuing employment with shorter working hours than before.
  • Job change: Continuing employment by placing workers in different jobs.

• Application targets and exceptions are set. The main content includes:

  • It will likely be applied step by step starting with workplaces of a certain size (e.g., 50 or more regular workers).
  • It only applies when workers themselves want continued employment.
  • Exceptions can be allowed for valid reasons like poor work ability or bad work attitude.
  • Application may be limited during company restructuring for business reasons.

📕 Wages and Working Conditions

• Wage adjustments are commonly made during continued employment. Main features include:

  • Wages are often adjusted to 70-80% of pre-retirement wages.
  • There's also a method of gradually adjusting wages from before retirement in connection with wage peak systems.
  • Performance pay and bonuses are usually reduced or excluded.
  • Social insurance like National Pension and Employment Insurance continues to apply.

• Changes in working conditions may follow. Main changes include:

  • Working hours may be reduced (e.g., 40 hours per week → 32 hours per week).
  • Job positions or work scope may be adjusted.
  • Work location or work methods (like working from home) may change.
  • Vacation and welfare benefits are often maintained similarly to before.

📕 Current Discussion Status and Issues

• The government and Economic, Social & Labor Council have made proposals. Main content includes:

  • A plan to gradually introduce continuous employment obligation up to age 65 has been presented.
  • A plan to start with workplaces of 300 or more people from 2025 and gradually expand is being considered.
  • Plans to operate through re-employment with wages adjusted to 70-80% of pre-retirement levels are being discussed.
  • The government is considering providing incentives like wage support or tax benefits.

• Various issues and concerns are being raised. Main issues include:

  • Labor groups argue that legal retirement extension (to age 65) would be more effective.
  • Business groups worry about increased company burden and reduced youth employment.
  • There are concerns about widening employment condition gaps based on company size and union presence.
  • Detailed operation plans like connection with wage peak systems and performance evaluation methods are issues.

Main Issues of the Continuous Employment Obligation System

1. Retirement extension vs continuous employment: Which is more effective - extending legal retirement to age 65 or requiring continuous employment
2. Company burden: Problems of increased labor costs and organizational rigidity
3. Youth employment: Effects of expanding senior employment on youth jobs
4. Widening gaps: Concerns about widening gaps between large and small companies, regular and irregular workers
5. Productivity: Issues of senior worker productivity and appropriate job placement

3️⃣ International Cases and Domestic Implementation Effects

✅ Continuous Employment Systems in Major Countries

• Japan is a representative case of the continuous employment obligation system. Main content includes:

  • It has been implementing continuous employment obligation up to age 65 since 2013.
  • Companies must choose one of: retirement extension, continuous employment system, or abolishing retirement age.
  • Most companies choose to operate through re-employment methods.
  • Wages are often adjusted to 50-70% of pre-retirement levels.

• European countries prefer approaches through retirement age extension. Main cases include:

  • Germany is gradually extending the legal retirement age to 67.
  • France allows voluntary extended work after age 62.
  • Britain abolished retirement age to prohibit age discrimination.
  • The Netherlands supports gradual retirement through flexible retirement systems.

✅ Cases of Voluntary Introduction by Domestic Companies

• Some large companies are voluntarily introducing continuous employment systems. Main cases include:

  • POSCO, Hyundai Motor, etc. are extending employment to age 65 through re-employment systems.
  • Among public institutions, Korea Electric Power Corporation, KT, etc. operate similar systems.
  • Most gradually adjust wages from before retirement in connection with wage peak systems.
  • Many operate through job changes or reduced working hours.

• Results and challenges of introducing companies are appearing. Main content includes:

  • The knowledge transfer and mentoring effects of skilled technicians are being evaluated positively.
  • Concerns about increased labor costs and reduced organizational vitality are also raised.
  • Appropriate job reallocation and building performance management systems have emerged as important tasks.
  • Some conflicts with young workers or generational communication problems are occurring.

4️⃣ Related Term Explanations

🔎 Wage Peak System

• The wage peak system is a system that gradually reduces wages after a certain age.
• The wage peak system means a system that gradually decreases workers' wages after they reach a certain age in exchange for extending retirement or guaranteeing employment. It's mainly applied from the late 50s to maintain employment until retirement or beyond.
• Main features of the wage peak system include: First, there's an exchange relationship between wage reduction and employment extension. Second, it's usually applied from ages 55-57 with wages decreasing 5-10% each year. Third, the government sometimes supports part of the reduced wages. Fourth, working hour reductions or job adjustments are often made together.
• The wage peak system pursues both senior employment stability and reducing company labor cost burden, but workers face the burden of income reduction. When operated with continuous employment obligation systems, it has the advantage of securing continuous income even after retirement.

🔎 Re-employment

• Re-employment is a method of employing again with a new contract after retirement.
• Re-employment means workers retire when they reach retirement age, then work again by making a new employment contract at the same workplace. This is a form of continued employment, distinguished from retirement extension.
• Main features of re-employment include: First, the existing employment relationship ends once, then a new contract begins. Second, working conditions like wages, working hours, and positions can be newly set. Third, retirement pay is usually paid once before re-employment. Fourth, it's often operated with one-year short-term contracts.
• Re-employment has advantages for companies of wage adjustment and flexible workforce management, but for workers it has disadvantages of lower job security and potentially worse working conditions. In continuous employment obligation systems, this re-employment method is expected to be mainly used.

🔎 Retirement Age Extension

• Retirement age extension is a system that raises the legal retirement age itself.
• Retirement age extension means raising the retirement age set by law or companies voluntarily raising the retirement age. While Korea's current legal retirement age is 60, extending this to 65 is a representative example of retirement age extension.
• Main features of retirement age extension include: First, existing employment contracts continue with only the retirement time delayed. Second, continuity of working conditions is guaranteed, providing stable employment. Third, it applies equally to all citizens with high fairness. Fourth, company labor cost burden may be relatively large.
• Retirement age extension has advantages of high job security for workers and maintained working conditions compared to continuous employment obligation systems, but it has disadvantages of large company burden and potential increased labor market rigidity. Labor groups tend to prefer retirement age extension over continuous employment obligation systems.

5️⃣ Frequently Asked Questions (FAQ)

Q: Will youth jobs decrease if the continuous employment obligation system is introduced?

A: This is a complex issue called the "lump of labor fallacy" in economics. In the short term, increased senior employment may have some impact on youth jobs, but this isn't necessarily true in the long term. Looking at positive aspects first, increased consumption by senior workers could create new jobs through economic activation. Also, knowledge transfer by skilled technicians could help improve young people's capabilities. Concerning aspects include reduced promotion opportunities and less capacity for new hiring. Looking at international cases, in Japan youth employment rates didn't worsen significantly after introducing the continuous employment system. What's important is preparing measures to minimize impacts on youth employment when designing the system. For example, role division is needed where seniors focus on mentoring and knowledge transfer roles, while young people are placed in new business areas or innovation work.

Q: Which is better between continuous employment and retirement age extension?

A: Each has advantages and disadvantages, so the appropriate method may differ by situation. Advantages of retirement age extension are high job security, fairness by applying equally to all workers, and guaranteed continuity of working conditions. But it has disadvantages of large company labor cost burden and potentially increased labor market rigidity. On the other hand, continuous employment obligation systems have advantages of reducing company burden through wage and working condition adjustments and enabling flexible workforce management. But they have disadvantages of relatively lower job security and potential gaps based on company size or union presence. Looking at international cases, Japan prefers continuous employment methods while Europe prefers retirement age extension methods. For Korea, decisions should be made considering company size gaps, labor market dual structure, and wage system characteristics comprehensively. Long-term, retirement age extension may be more desirable, but short-term gradual approaches through continuous employment systems may be more realistic.