The government is pushing to transition the retirement pay system to focus on retirement pensions and to pay retirement benefits to those who have worked for three months or more, raising concerns among small business owners. There are concerns that if retirement pensions are fully mandated, the fixed cost burden for small businesses with fewer than five employees will inevitably increase.
According to a report by ChosunBiz on the 25th, the Ministry of Employment and Labor is working on a plan to mandate retirement pensions for all business sites. Once the mandatory work is completed, retirement benefits will only be available as pensions, not as a lump-sum retirement payment.
However, it is believed that if retirement pensions are mandated for all business sites, it will significantly impact small business owners, leading discussions to expand the application over five phases. The plan is to mandate retirement pensions for businesses with 300 or more employees, those with 100-299, 30-99, 5-29, and fewer than five.
Additionally, the government is discussing a plan to allow retirement benefits to be received after only three months of work, rather than the current requirement of one year. If this discussion materializes, employers will need to pay retirement benefits to nearly all workers, including 'short-term part-time workers' who have worked for three months.
As news emerges that the plan to fully mandate retirement pensions is progressing, voices of concern are growing among small self-employed individuals.
Lee Taek-joo (65), who has been operating a retail business in Seoul for 21 years and employs three full-time and two temporary workers, said, “If the retirement pay changes to retirement pensions, regardless of current payment capabilities, we will have to pay the bank every month. Even now, after paying the employees' salaries, there’s nothing left, making it impossible to take a salary myself. If it means spending nearly 1 million won monthly on retirement pensions, I worry whether I can continue the business.”
A representative operating a convenience store in Dongdaemun, Seoul, said, “Even now, labor costs are burdensome, so we split shifts and hire people for 14 hours. If discussions take place to require retirement payments after three months of employment, I think there will be many who will not hire part-timers for over three months.”
Currently, small business owners and self-employed individuals are in a position where repaying interest is a struggle due to sluggish domestic demand.
According to the Bank of Korea, among the 34,167 corporate entities subject to external audits last year, 40.9% had an interest coverage ratio below 100%. This means that four out of ten corporations are struggling to repay interest. Consequently, 986,000 self-employed individuals filed for business closure last year.
In this situation, concerns are being raised in the industry that the rise in fixed costs due to the increase in national pension premiums, along with rising minimum wage and mandatory retirement pensions, will lead to an acceleration in business closures.
A representative running a restaurant said, “With sales continuously decreasing, the minimum wage, monthly rent, and national pension insurance premiums are all increasing,” adding, “People around me are increasingly responding that they now have to give up rather than finding ways to overcome difficulties.”
Some question the effectiveness of fully mandating retirement pensions.
Lee Bong-joo, an emeritus professor of international business at Kyunghee University, noted, “The discussion about mandating retirement pensions has been around for the last 10 years, but due to economic difficulties in small and medium enterprises, implementation has been delayed. Without policy support for small business owners and self-employed individuals, it will not be easy to introduce mandatory retirement pensions.”
According to Statistics Korea, as of 2023, the size of workers enrolled in retirement pensions by the scale of business sites is as follows: over 300 employees (70.2%), 100-299 (68.7%), 50-99 (60.8%), 30-49 (56.2%), 10-29 (48.2%), 5-9 (29.5), and fewer than five (11.8%).
A representative from a small business said, “In small and informal businesses where job changes are active, the retirement benefit has served as an incentive to retain employees for more than a year, but if this is reduced to three months, job changes will accelerate. This will also lead to an increase in labor costs for those with less than a year, further burdening small business owners.”