The Canadian - Employer Insights: 65 is the new 60

The Canadian - Winter 2016. Vol 16. Issue 01.

Employer Insights: 65 is the new 60 - Dealing With an Aging Workforce in Japan

By Colin P.A. Jones is a professor at Doshisha Law School in Kyoto and a director for the Manpower Group Japan Co.Ltd., one of the oldest foreign-capitalized firms in Japan. colin.jones [at] manpowergroup.jp

As Japan ages and the resulting demographic imbalance imposes increasing burdens on pensions and other welfare schemes, employers are being required to offer additional employment opportunities to employees approaching retirement age. Many employers have long had rules requiring employees to retire at the age of 60. While some income-linked pension payments commenced at that age, full pension benefits do not commence until the age of 65, resulting in a “gap period” that will get worse as the age of eligibility for the income-linked portion is gradually increased to 65 over the next decade.

Part of the solution to this problem in Japan is found in the Stabilization of Employment of Elderly Persons Act, which requires employers to have in place measures to provide opportunities to employees to continue their employment up to the age of 65. Such measures are required even if employers do not currently have any employees approaching retirement age. Employers can satisfy the requirement in one of three ways: (1) by raising their mandatory retirement age to 65, (2) by not having a mandatory retirement age at all, or (3) leaving retirement age at 60 but affording all eligible employees a reasonable opportunity to continue some form of employment (including with eligible group companies)—essentially being “re-hired” in a new capacity—until the age of 65.

Most companies appear to have adopted the third approach, probably because it offers the most flexibility while being the most cost-efficient option. The law specifically does not require companies to continue employing workers past the age of 60 on the same terms; both compensation and working hours can be reduced so long as the opportunity is reasonable and consistent with the intent of the law—to give aging workers the opportunity to continue earning an income until they are eligible for their full pension benefits.

The “re-hire” option may not be offered selectively. While it is possible to specify in the rules of employment grounds for refusing continued service after reaching retirement age, they may not be different than grounds for termination—which is typically a very high threshold. Agreements between the employer and unions may add further complications beyond the scope of this short article.

The third option may also be attractive to employers because it provides an opportunity to negotiate with several years away from retirement age. For example, employees who are currently 55 (for example) can be offered the choice of working to the age of 65 under new terms that apply immediately, or continuing until the age of 60 under existing terms. The law only requires that opportunities to work until 65 be offered to employees and that they be reasonable: they do not require them to be acceptable to employees in every instance.

Dealing with aging employees in a complex regulatory environment requires specialized knowledge and experience. Workforce solutions companies like ManpowerGroup offer a wide range of related consulting services and training programs for clients in Japan and around the world.