"If the retirement age is raised to 65, an additional cost of 15.9 trillion won per year"

Extension of Retirement Age to 65: Direct Costs of 14.4 Trillion KRW, Indirect Costs of 1.5 Trillion KRW, Total Costs of 15.9 Trillion KRW
Expanding Wage Peak System Could Save About 2.7 Trillion KRW and Enable Additional Employment of 86,000 Youth
If Retirement Age Extension Is Inevitable, Wage System Reforms Such as Job-Based Pay or Wage Peak System Must Accompany

[Asia Economy Reporter Changhwan Lee] There is a claim that extending the retirement age from the current 60 to 65 would result in additional costs totaling 15.9 trillion KRW due to the extra employment of those aged 60 to 64.

The Korea Economic Research Institute (KERI) announced this on the 1st in a report titled "Cost Estimation and Implications of Retirement Age Extension."

KERI used the supplementary survey on employment types from the Economically Active Population Survey to estimate the costs associated with additional employment of those aged 60 to 64 if the retirement age is extended from 60 to 65.

They explained that the additional costs were estimated by calculating the increase in the number of regular employees due to the extension to 65, subtracting the number of regular employees aged 60 to 64 who would be working even without the extension, thus isolating the additional employment costs.

As a result of calculating the costs of extending the retirement age to 65, the direct costs (wages) in the fifth year after implementation, when the 60 to 64 age group becomes beneficiaries of the extension, were found to reach 14.4 trillion KRW annually.

KERI also estimated indirect costs such as the four major social insurance contributions. The analysis estimated that the indirect costs borne by employers due to additional employment of those aged 60 to 64 would amount to 1.5 trillion KRW.

Consequently, the direct costs of additional employment for those aged 60 to 64 due to extending the retirement age to 65 are estimated at 14.4 trillion KRW, and indirect costs at 1.5 trillion KRW, with the total cost analyzed to be approximately 15.9 trillion KRW.

◆ If the wage peak system is widely adopted and the annual wage reduction rate reaches 5%, a cost saving of 2.7 trillion KRW per year is possible = The report assumed an average annual wage reduction rate of 2.5% for those aged 60 to 64 when estimating additional costs due to extending the retirement age to 65. It also estimated cost savings if the wage peak system is widely adopted, increasing the average annual wage reduction rate to 5.0%.

The analysis showed that the additional cost burden on employers due to extending the retirement age to 65 would decrease by about 2.5 trillion KRW in direct costs and about 250 billion KRW in indirect costs compared to before the widespread adoption of the wage peak system, resulting in a total saving of approximately 2.7 trillion KRW.

The report stated that if the direct cost savings of 2.5 trillion KRW from the wage peak system are divided by the average annual wage per person for youth aged 25 to 29, it is estimated that about 86,000 additional young workers could be employed.

The report fundamentally stated that extending the retirement age is a matter that companies should decide autonomously through labor-management agreements. Regarding retirement age, it is most reasonable for companies to autonomously determine the working age and wage levels of employees according to their corporate characteristics.

Nevertheless, the report added that if companies are mandated to extend the retirement age, it is necessary to explicitly and specifically stipulate mandatory provisions for wage system reform measures in the law.

Yujin Sung, a research fellow at KERI, said, “When introducing retirement age extension, wage system reforms such as job-based pay or the wage peak system should be promoted simultaneously to alleviate the burden on companies.” He added, “Through this, efforts are needed to simultaneously achieve job stability, strengthen corporate competitiveness, and sustain economic growth in a low birthrate and aging society.”

This content was produced with the assistance of AI translation services.