Guaranteeing the Right to Work Until 65

During the current ordinary session of the Diet, the government plans to submit an amendment to the Law Concerning Stabilization of Employment of Older Persons. In April 2013, the age at which men become eligible to receive the state pension will increase from 60 to 61. If the mandatory retirement age remains at 60, as it is in many companies today, large numbers of older people will be left without any income.

Too Many Pensioners, Not Enough Workers

There are two main reasons for the amendment. The first is that the age at which people become eligible for the state pension is going up incrementally from 60 to 65. In April 2013, the age at which men can start to claim their pension will rise to 65 for the flat-rate component, and to 61 for the earnings-related component. In spite of this, more than 80% of Japanese companies continue to impose mandatory retirement at 60. The situation is urgent: if things are left as they are, many of those who turn 61 next year will be left without a paycheck or pension.

Another reason is the shrinking size of the working-age population that supports the elderly. According to recent demographic statistics, by 2060 the elderly (those aged 65 or over) will make up 40% of Japan’s population and the number of workers supporting each elderly person will have dropped from 2.8 in 2010 to just 1.3. The government believes that it will be impossible to maintain the social security system unless some of the elderly are shifted back onto the working side of this equation.

In theory, continuing employment until the age of 65 should already have been secured by amendments to the law that came into force in 2006. But these earlier amendments have not produced the hoped-for results, and there is a pressing need for further revisions.

There are three basic ways to bring about stable employment for older people: (1) Extending the retirement age, (2) Abolishing the retirement age, and (3) Implementing a “continuing employment system” allowing people past retirement age to be re-hired as non-regular workers. In theory, the amended labor law passed in 2006 made it obligatory for companies to use one of the three methods to guarantee ongoing employment to employees who wished to continue working until 65. In practice, 80% of companies chose the third option.

In response to company protests, a provision was included to allow employers to establish criteria for evaluating whether a particular employee should be offered employment or not, subject to agreement between labor and management. Many companies came up with vague, ill-defined criteria such as “appetite for work” or “positive attitude” to select the workers who would be offered a new contract.

This has resulted in people being denied reemployment, even though they want to go on working. According to a study carried out by the Ministry of Health, Labor, and Welfare in 2011, such cases accounted for 1.8% of those reaching retirement age, or approximately 7,600 people. At large firms, only 21.6% of companies rehired all employees who expressed a desire to continue working. This has prompted the ministry to amend the laws on employment of older people again, eliminating the re-employment criteria.

Retirement at 70?

The second amendment to the labor laws is no more than a stopgap measure, however. Japan’s birthrate is plummeting and its society aging faster than anywhere else in the world. Against this background, the Ministry of Health, Labor, and Welfare, which oversees both employment policy and the pension system, is looking into the possibility of raising the age at which people start to receive their pension to somewhere in the region of 68 to 70. This will make employment to age 70 essential in the future. But frustration with the government’s response is mounting in the private sector—along the lines of the criticism voiced by an executive at a major electronics maker that the government is “trying to force companies to deal with the consequences of its own failed pension policies.” Given this mood of dissatisfaction, there is no guarantee that the ministry will be able to proceed smoothly to the next stage in its plans.