Later retirements could stave off fiscal hardship

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Later retirements could stave off fiscal hardship

Korea urgently needs to change its retirement system as white collars in their 40s and 50s are increasingly being pressured into taking early retirement, which poses a threat to government coffers as incomes and taxes decline, according to Samsung Economic Research Institute (SERI).

The nation saw 4.2 million white collars last year, up 36.4 percent from 2000, SERI said in a report released yesterday. Over the same period, the number of so-called baby boomers aged 45 to 59 years old has more than doubled from 380,000 to 910,000, the data showed.

However, the average age of retirement for white-collar workers was found to be alarmingly low last year at 53.9 - six years before they can begin collection their pensions. Although there is no legal retirement age in Korea’s private sector, SERI surveyed a cross-spectrum of companies and found that most set their policy at a median age of 57.7.

Companies were found to be pushing staff out of the door earlier due to the financial burden of having large numbers of employees on their books in their 40s and 50s, age brackets that typically command a higher salary.

Baby boomers took home 4.5 million won ($4,195) a month on average in 2011, or 150 percent more than younger employees, SERI said. This effectively puts them first in the line of fire when corporate restructuring takes place, and as fewer managerial positions become available due to the prolonged economic pinch. The SERI report said there were 150,000 managerial positions open to those in their late 40s and early 50s in 2009, but that this number had dropped to 140,000 last year.

“These people have to leave the company if they fail to get promoted to executive positions,” said Tae Won-you, a SERI researcher. “Such a trend of early retirement will not only lead to reduced household income, but also cause companies to lose money as they will no longer have access to the vast trove of knowledge that such employees have accumulated over the years.”

Tae said it will also spark greater social anxiety, especially among those who still have to pay for their children’s education and their own mortgages.

It is also a burden for the government as an additional 460 billion won would be needed to cover unemployment allowances in coming years if 53.9 continues as the average age of retirement. Tax revenue would also drop to worrying levels, SERI said.

Tae added that companies need to apply different retirement ages according to what industry they are in, as well as adopting a peak wage system that extends the age of retirement but offers smaller paychecks.

Other solutions include adopting more flexible, or reduced, working hours for older staff and stepping up job training for those who are about to retire, he added.

By Lee Ho-jeong [ojlee82@joongang.co.kr]

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