South Korea's Wage Cuts and Retirement Rules Leave Older Workers Facing Poverty

Working Longer, Earning Less

South Korea has the highest elderly poverty rate among countries in the Organization for Economic Cooperation and Development (OECD), even though its older people are unusually likely to keep working. The OECD's 2023 report puts the share of Koreans aged 65 and older living below the poverty line at 40.4%, compared with an OECD average of 14.2%. Other estimates cited in the debate range from 38% to 48%.

For many workers, financial pressure begins before retirement. Under the country's peak wage system, salaries can fall by 20% at age 56, followed by further annual cuts of 10% until mandatory retirement, typically at 60. Companies can require employees to leave at a set age, and 95% of firms with more than 300 employees have adopted such a rule, almost always choosing 60.

G Young Soo, a pseudonymous insurance worker interviewed by Human Rights Watch (HRW), described losing nearly half his salary in the years before retirement while his workload stayed the same. His experience captures the problem facing employees who still have the ability to do their jobs but receive less money because they have grown older.

As of July 9, 2025, President Lee Jae Myung has pledged to gradually raise the mandatory retirement age to 65. The proposal would bring retirement closer to the age at which future retirees can claim their pension. Human rights advocates argue that changing the retirement age alone would leave the underlying rules responsible for wage cuts and forced departures intact.

South Korea's rapid economic ascent and reputation for social cohesion now sit alongside an increasingly urgent problem: how to support an aging population when employment practices and retirement benefits leave millions of older people financially vulnerable and socially marginalized.

How the Peak Wage System Works

The peak wage system was introduced as a compromise between extending working lives and limiting employers' labor costs. Used principally in South Korea and, to a lesser extent, Japan, it reduces employees' salaries as they approach retirement.

Companies are meant to use the savings to keep older employees working longer and recruit younger people. The policy therefore seeks to address two pressures at once: youth unemployment and the growing number of older workers.

A worker facing a 20% cut at 56 and further annual reductions has less income during the final years of a main career. When the work itself remains unchanged, the reduction can feel especially difficult to justify. The employee is still carrying out the same duties while taking home a smaller salary.

HRW's findings describe a pattern of age discrimination, financial insecurity and declining job quality. Instead of remaining in their established careers, many older people move into jobs with lower pay and less security.

The dispute is therefore about more than whether companies can afford to retain employees. It concerns how the costs of an aging workforce are shared, and whether a person's age should determine their pay and the end of their career.

The Personal Cost of Mandatory Retirement

D Young Sook, a nurse facing mandatory retirement after 36 years, described the prospect in personal terms:

standing by myself on a windy road.

Older workers report humiliation, anxiety and a loss of purpose when they are required to leave their main careers. Many then take jobs as security guards or care workers, often with lower wages and less predictable employment.

Bridget Sleap, author of the HRW report, described how the retirement and wage rules work together to disadvantage older employees:

They deny older workers the opportunity to continue working in their main jobs, pay them less, and push them into lower-paid, precarious work, all just because of their age. The government should stop punishing workers for getting older.

For households, the consequences extend beyond the last day in a familiar workplace. Wage reductions can weaken financial security before retirement, while the move into insecure work makes income harder to depend on afterward. HRW identifies these employment policies as a structural driver of poverty and inequality among older Koreans.

Why Employment Does Not Keep Many Seniors Out of Poverty

South Korea's population had already reached a major demographic threshold by 2024: 20% were older than 65. The employment rate for that age group was 37.3%, more than double the OECD average.

Yet the country's elderly poverty rate remains exceptionally high. The OECD figures of 40.4% for South Korea and 14.2% across its members mean the Korean rate is nearly three times the average. High participation in work sits alongside widespread financial hardship because many of the available jobs pay too little and offer too little security.

Nearly 70% of workers over 60 are in nonregular employment. This means work outside the more secure arrangements associated with regular employment, leaving workers exposed to uncertainty about their income and continued employment. They earn an average of 29% less than younger colleagues.

The average monthly pension is about 600,000 won, or approximately $450, and only about one third of retirees receive any pension. Workers who leave their main careers at 60 must also contend with pension eligibility rising to 65 by 2033. For those affected, that creates a five year period with little or no income between retirement and pension access.

Security guard and care work can help people earn money during that interval, but the pay and employment conditions often fall well below those of their previous careers. The combination of reduced wages before retirement, weaker earnings afterward and limited pension income explains why continued employment can coexist with poverty.

Where the Pension System Falls Short

South Korea established its pension system in 1988, and it was never designed to provide comprehensive financial security in old age. Public spending on benefits for older people was just 1.6% of gross domestic product (GDP) in 2007. GDP measures the value of goods and services produced in the economy, so the figure shows the small share devoted to those benefits at that time.

The average pension replaces only about one third of a worker's previous income. A person moving from wages to that level of pension must manage a substantial fall in the money available for daily living.

The Basic Pension, financed through taxes, covers about 70% of people over 65. Its benefit is equivalent to only 8% of gross average earnings, meaning average pay before deductions. Even doubling that benefit would leave elderly poverty rates high.

The National Pension Service (NPS) also faces gaps in contributions. The average worker contributes for 18.6 years, far less than in other OECD countries. Only about 60% of the population of working age contributes, despite legal requirements.

Company pensions and personal savings provide limited protection as well. Some 96% of eligible workers choose a single severance payment rather than a company pension, often because of early retirement practices. A single payment provides money immediately, while a pension provides income over time. Personal pension savings amount to 32% of GDP, compared with an OECD average of 100%.

Older Koreans consequently face weaknesses across several sources of retirement income: the public pension, company pensions and personal savings. Traditional support from families has also eroded as urbanization and changing social norms alter how households live. Many people are left depending on insecure work with low wages to survive.

Does Cutting Older Workers' Pay Create Jobs for the Young?

Younger workers are central to the argument for the peak wage system. Its supporters expect lower spending on older employees' salaries to free money for new recruitment.

Academic studies using difference-in-differences methods have found some evidence of increased youth employment, especially at firms with a higher proportion of elderly workers. This method compares changes over time in groups affected by a policy with changes in groups that are not affected, helping researchers estimate the policy's effect.

The measured benefit is modest and comes with substantial costs to older workers' financial security and dignity. Other empirical analyses suggest that each additional older worker employed may be associated with a decrease of 0.4 to 1.5 younger workers, particularly in firms with limited flexibility.

Those findings point to a difficult policy tradeoff. Keeping an older employee in a job and creating an opening for a younger person depend on the employer's budget, wage arrangements and capacity to change how work is organized. Raising the retirement age or reducing older workers' salaries does not automatically produce more jobs for young people.

Changes to pay and working arrangements are therefore part of the debate. Moving away from salaries determined mainly by length of service toward pay based on performance or tasks could change the cost of retaining experienced staff. Flexible arrangements could also allow employers and workers to adjust duties and hours as careers develop.

Raising Retirement to 65 or Ending the Age Limit

President Lee's pledge to gradually raise the mandatory retirement age to 65 responds to the gap between leaving work and receiving a pension. The National Human Rights Commission and other advisory bodies have recommended the same change, citing the need to guarantee a dignified life for older workers. No implementation date is given for the pledge.

Younger workers fear that longer careers for existing employees could reduce their job prospects and productivity. Labor unions are divided: some support raising the retirement age, while others want mandatory retirement abolished altogether.

Labor lawyer Kim Ki-duk argues that extending the age limit without changing the wage system could expose employees to more years of salary reductions:

The retirement system itself is problematic. Simply raising the retirement age to 65 would give companies more years to apply discriminatory wage cuts under the current system. Workers should be able to continue as long as they can perform their duties.

HRW and other human rights advocates call for the abolition of both mandatory retirement and the peak wage system. They point to international human rights law, which prohibits employment decisions based solely on age unless the treatment can be justified as necessary and proportionate. In plain terms, an age rule needs a sound reason, and its effects must be reasonable in relation to its purpose.

The choice between raising the age limit and removing it would change workers' options in different ways. A higher limit would extend a career before another compulsory departure. Abolition would allow continued employment to depend on the ability to perform the work rather than reaching a particular birthday.

The Dates Behind the Retirement Gap

South Korea's pension and population figures show how the pressures have developed and why retirement policy is becoming more urgent. The milestones stretch from the creation of the pension system to projections of a much older population:

• 1988: South Korea established its pension system.
• 2007: Public spending on benefits for older people stood at 1.6% of GDP.
• 2023: The OECD report put elderly poverty at 40.4% in South Korea, compared with an OECD average of 14.2%.
• 2024: People older than 65 accounted for 20% of the population, and employment among that age group stood at 37.3%.
• 2033: Pension eligibility is set to reach 65.
• 2035: People over 65 are projected to account for 30% of the population.
• 2050: Their share is projected to reach 40%.

The projected rise from 20% in 2024 to 40% in 2050 would double the share of older people in the population. Employment rules that already affect large numbers of households would then shape the financial security of an even larger part of society.

What Japan's Experience Offers

Japan entered a society with a very large elderly population before South Korea. Over the past 30 years, it has taken a phased approach: a retirement age of 60, an employment guarantee to 65 and policies supporting work up to 70.

Japan changed its wage system and introduced flexible working arrangements alongside those steps. Employers and workers have had several options after retirement, including reemployment, freelance contracts and support for starting a business.

That experience offers South Korea a practical comparison. Raising the retirement age is one part of a wider strategy, alongside changes to pay, working hours and job roles. The approach also needs to fit the country's labor market and legal framework.

The measures discussed include moving from pay based mainly on seniority toward pay based on performance or tasks, allowing more flexibility in hours and duties, and expanding reemployment systems step by step. Encouraging voluntary adoption before making changes compulsory gives companies and workers time to adjust.

The purpose is to improve older workers' quality of life while maintaining a balance between generations. Japan's experience illustrates why the conditions of continued employment matter as much as the age at which a worker must leave.

Reform Beyond the Workplace

South Korea's retirement debate forms part of broader pressures from rising inequality, wage stagnation and demographic decline. Income inequality has increased since the 2000s, and the share of workers receiving low wages remains high.

The country has the world's lowest birth rate, while the national pension fund faces possible depletion within decades without major reform. Those pressures place demands on both the workforce and the resources available to support retirees.

Previous administrations increased minimum wages and expanded social programs, reducing some measures of inequality. Results have been mixed, however. Wealth remains concentrated, especially in real estate, while economic growth has lagged. The COVID-19 pandemic and global economic shifts have placed further strain on public finances and household security.

Researchers, human rights advocates and international organizations broadly agree that isolated changes will be insufficient. Their proposals include stronger government action, greater social spending and changes to rigid employment practices based on seniority. Without comprehensive reform, South Korea risks a deeper demographic and economic crisis.

HRW's call to abolish mandatory retirement and peak wage rules would make ability, rather than age, the basis for employment decisions. Reforming pay structures could support the retention of skilled older workers without imposing automatic financial penalties as they age.

Stronger social protection would address people who cannot rely on continued employment. Recommendations include increasing pension coverage and benefits, ensuring adequate unemployment and health benefits, and directing support toward the most vulnerable elderly people.

Flexible hours, freelance work, reemployment, retraining and programs to develop skills could widen the choices available to older workers. Policies also need to support younger people, avoiding an approach in which one generation's security depends on another's loss.

The goal is a labor market and safety net that recognize people's contributions regardless of age. For older Koreans, that means a fair chance to continue suitable work, dependable income when employment ends, and dignity and security in old age.

Key Points

• South Korea's elderly poverty rate was 40.4% in the OECD's 2023 report, nearly three times the OECD average of 14.2%.
• Peak wage arrangements can cut salaries from age 56, while mandatory retirement is typically set at 60.
• Nearly 70% of workers over 60 are in nonregular employment, earning an average of 29% less than younger colleagues.
• Pension eligibility is rising to 65 by 2033, creating a five year income gap for workers retiring at 60.
• President Lee Jae Myung has pledged to gradually raise the retirement age to 65; HRW calls for ending mandatory retirement and peak wage rules.
• Reform proposals combine changes to employment and pay with stronger pensions, social protection and opportunities for both older and younger workers.