Hwang calls for introduction of peak salary system


The ruling Saenuri Party chairman Hwang Woo-yea said on Tuesday that his party would take steps to obligate all businesses to set the retirement age at 60.

At present, companies are only recommended to set the retirement age at 60. The average retirement age for local firms with over 300 employees is 57.4, and people actually retire at age 53 on average, according to the Korea Labor Institute.

“We will initially push for extending the legal retirement age at businesses to 60 to improve the lives of seniors,” Hwang said in a radio speech.

“We will make efforts to extend it to 65 in the longer term and to 70 by 2020 to eventually make the retirement age obsolete.”

A growing number of baby boomers, born between 1955 and 1963, suffer financially from early retirement.

The nation’s major business lobbying groups, however, say the retirement age issue should be left to the discretion of each company as it could limit the hiring of new recruits and greatly burden small firms.

“Our basic position is that retirement age extension is a matter that should be determined by the individual companies based on their own situations,” said Ahn Jong-hyun, head of the employment and welfare team at the Federation of Korean Industries.

“A mandatory extension could negatively affect the hiring of the younger generation and arouse generational conflict over jobs.”

Introducing a peak salary system, which Hwang has vowed, to extend the retirement age for senior employees in return for gradually reducing their salaries in the years leading up to retirement, requires an agreement between the labor and management, and the unions are not going to be supportive, Ahn said.

Yoo Il-ho, an official at the Korea Chamber of Commerce and Industry, also said the retirement age issue should be left to the individual companies to decide as they have different hiring capacities.

“Making it legally compulsory would hold back businesses, small ones especially, from hiring new recruits, resulting in an aging workforce, and would benefit only a small number of workers at large companies that can handle the change,” Yoo said.

Since most Korean companies have a seniority wage system, under which employees are paid based on the number of years they have worked, introducing the peak salary system won’t help ease the companies’ burden unless they shift to paying workers based on the productivity of their jobs, according to Yoo.

“Switching to the job-based payment system also requires the approval of the union and the workers, which won’t be easy,” he said.

A recent KCCI report showed that 39.7 percent of manufacturers were voluntarily rehiring or extending the employment of retirees through the peak salary system.

“The government should work on creating an atmosphere for businesses to voluntarily adopt the peak wage system or the job-based payment system,” Yoo said.

Workers in most advanced economies except for Japan are paid based on the productivity of their jobs rather than seniority.

Hwang said it was worth considering cutting work hours after a certain age and making up for the reduced income with pensions as in the case of Germany.

By Kim So-hyun (sophie@heraldcorp.com)