Source: Korea Herald

S. Korea’s bid to raise retirement age draws criticism, analysts warn against potential repercussions to economy and labour market

The South Korean government’s proposal to raise the official age of retirement from 60 to 65 has received considerable criticism, as experts warn against the possibility of further disruption to the labour market and a widened economic gap in society.

Bloomberg reported Mon (14 Oct) that South Korea’s poverty rate among the elderly is the worst out of all of the Organization for Economic Cooperation and Development (OECD) countries, with over 40 per cent of senior citizens above the age 65 being classified as “poor”. 

One of the factors contributing to the nation’s dismal state of poverty among its senior citizens is the lack of a substantial social welfare system. According to data gathered by South Korea’s statistics office, the monthly allowance for South Korean pensioners was just 610,000 won (S$705.76) per month on average as of May this year, Bloomberg observed.

Given the country’s National Pension Service’s (NPS) failure to secure adequate social safety nets for its senior citizens despite ranking among the top five public pension funds globally, many elderly South Koreans are forced to resort to taking up what an OECD report has labelled as “poor-quality” jobs “with low and insecure earnings and little or no social protection”, Yonhap News Agency reported in May this year.

Many South Koreans have also opted, or are opting, to delay receiving their pension in a bid to receive higher payouts, citing apprehension regarding high healthcare costs and a potentially longer lifespan.

Data by the NPS revealed the number of people who have opted to delay taking their pension went from 3,000 in 2013 to 31,300 by the end of 2018, according to Yonhap News Agency.

Cho Hyun-yun, a researcher at Dongguk University in Seoul, told Nikkei Asian Review that the South Korean government’s “political inability and irresponsibility is the reason behind senior citizens’ highest poverty and suicide rates” among OECD States, and that political parties should “play key roles in resolving elderly poverty”.

South Korea’s elderly suicide rate was 58.6 per 100,000 people in 2015, which is among the highest in the OECD.

Health and Welfare Minister Park Neung-hoo in Jan this year said that “simultaneous structural reform” should take place alongside the proposed increase in retirement age, such as greater support for the elderly to obtain secure employment or to start their own businesses, Korea Times reported.

Park added that “the creation of jobs suitable to senior citizens, the expansion of lifelong education and an increase in basic living subsidies for the underprivileged” were also necessary.

Lee Chul-hee, an economics professor at Seoul National University, told Bloomberg that it is likely that raising the retirement age will result in more downsides than benefits, adding: “It won’t help with elderly poverty and it’ll do little to raise employment.”

Yonhap in Jun this year reported Labour Minister Lee Jae-kap as saying that raising the retirement age “should be a long-term task, as the immediate adoption of a new one could negatively affect youth employment“.

South Korea’s statistics office revealed this month that the unemployment rate among South Koreans aged 15-29 was 10.6 per cent in Q2 this year, which is a stark contrast to the 3.1 per cent for those aged 60 and above and 4.1 per cent for the country’s workforce as a whole.

Nam Jae-ryang, a researcher at the Korea Labor Institute in Sejong, told Bloomberg that unionised employees in big companies such as Hyundai Motor Co. and government officials – whose job security is already mocked as “iron rice bowls” – will be the ones benefiting from the raised retirement age.

“The gap between haves and not-haves in the labor market would worsen,” Nam said. “We may see the opposite of what we intended by raising the retirement age.”

Mu Guangzong, professor at the Institute of Population Research at Peking University, opined in a commentary on Global Times in Jul last year: “Institutional retirement is based on age, functional retirement is based on ability. But whatever be the type of retirement, nobody can work forever. It is unrealistic to expect people over 80 or 90 to stick to their jobs.”

S’pore govt to raise retirement and re-employment ages up to 65 and 70 respectively by 2030

Closer to home, Singapore will raise the ages of retirement and re-employment for Singaporeans up to 65 and 70 respectively by 2030, according to Prime Minister Lee Hsien Loong.

Speaking at the National Day Rally at ITE College Central in Ang Mo Kio in Aug this year, Lee said that the age thresholds will be gradually raised – the retirement age will be raised from the present 62 to 63 in 2022, before being lifted to 65 by 2030.

The re-employment age, he added, will be increased from the current 67 to 68 in around three years from now, and will “eventually” be raised to 70 by 2030.

Calling it a “sensible” proposal, Mr Lee said that the decision was made following meetings with the Tripartite Workgroup for Older Workers, a workgroup set up by the Ministry of Manpower (MOM), in a bid to “support older workers and the businesses that employ them”.

“Last year, the Ministry of Manpower, MOM, set up a Tripartite Workgroup on Older Workers to study the issue. I met the Workgroup members last month for lunch. They told me they had had intense discussions. Even at lunch, the discussion was quite intense. Why? Older workers wanted to be certain of continued employment for longer. When can I retire later? Can I be reemployed longer? Can I be reemployed more years at a time?

“But employers were worried about business costs and the uncertain economic outlook, and they said “I support you, I understand your aspirations, but I need more flexibility. Because I do not know what will happen. If I go broke, your job is gone too.” In the end the Workgroup reached consensus,” he said.

“Most seniors in fact do not want to stop working,” he said, adding that the changes introduced by the Government “will support older workers to continue working longer and to be more financially independent”.

Lee assured that the Government will “implement a support package” for elderly Singaporeans returning to the workforce, which will be announced by Deputy Prime Minister and Finance Minister Heng Swee Keat in next year’s Budget.

“As a major employer ourselves, the Government will take the lead for public officers. The Public Service will raise its retirement and re-employment ages one year earlier – in 2021 instead of 2022,” he said, while calling upon private sector companies that are able to do the same to do so too.

Lee also said that the Government will increase CPF contribution rates for older workers starting 2021, and will not amend the current CPF withdrawal policies or minimum age threshold.

“Today, CPF contribution rates for workers begin to taper down after the workers turn 55. We will raise the rates for workers above 55. We will take the first step in 2021. And we will take subsequent steps after that.

“The whole process will take 10 years or so, about there, but it depends on economic conditions. By the time we are done, those 60 and below will enjoy the full CPF rates. The CPF rates will only begin to taper down after 60, and level off after 70. So this is the first change – to increase CPF for older workers gradually over the next 10 years or so.

“To be absolutely clear: we are not making any changes to CPF withdrawal policies or CPF withdrawal ages. You can still take out some money at age 55. And you can still start your CPF payouts from age 65. All that remains exactly the same. So please ignore any rumours you may hear about this, or messages on WhatsApp, because they are fake news!” said Lee.

The Institute of Policy Studies recently released a report calling for CPF contribution rate for older workers starting from ages 55 to be restored from 26 per cent to the same levels as younger workers at 37 per cent. The current CPF contribution rate for workers aged 60 to 65 is 16.5 per cent, while the rate for those older than 65 is 12.5 per cent. The report’s suggestion includes increasing those to 37 per cent as well.

When asked if such proposals to increase the CPF contribution rates are feasible through negotiations and discussions, NTUC Secretary-General Ng Chee Meng in an interview with CNA938 the same month simply noted that the CPF rates are a subtopic for the tripartite work group and that there would be a formal report “sometime soon”.

Manpower Minister Josephine Teo said in Jun this year in relation to raising the ages of retirement and re-employment that she was “encouraged” by statistics on rising life expectancy among Singaporeans.

Citing a Lianhe Zaobao report, which noted that the healthy life expectancy of Singaporeans rose 7.2 years to 74.2 years in the last 27 years, while life expectancy rose 8.7 years to 84.8 years, Teo said that the statistics indicate that Singaporeans are generally in “good health”.

“People living longer and generally healthier lives is a key reason that they work longer – this is a trend that we observed across many developed countries,” she added.

The retirement age was last raised in 1999 from 60 to 62, while the re-employment age was raised from 65 to 67 two years ago.