Mandatory Retirement, called Teinen (定年) in Japanese, is a system when employees retire once they reach a certain age. The retirement age is decided by the company, but it must be 60 years or older. In Japan, the declining birthrate and ageing population have exacerbated labour shortages, leading to an increase in the mandatory retirement age to secure manpower.
This article introduces the percentage of retirement ages by company size in Japan, and explains systems such as reemployment and employment extension, which allows employees to continue working even after retirement.
Table of Contents
- What is Teinen (定年)?
- The Present and Future of Retirement in Japan
- Why is the Retirement Age getting extended in Japan?
- Systems that Allow People to Work Even After Retirement
- Companies that Set Maximum Age for Employment
- Comparison of Mandatory Retirement Systems in Japan and Overseas
What is Teinen (定年)?
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Teinen (定年) means “mandatory retirement”, a system where an employee retires upon reaching a certain age. In Japan, it is up to companies to decide whether to implement a mandatory retirement system. By law, the minimum retirement age must be set at 60 years old, but there is no upper limit.
The specific date of retirement depends on the company. Examples include:
- The day an employee reaches retirement age.
- The payroll cutoff date for the month an employee reaches retirement age.
- The last day of the month an employee reaches retirement age.
- The last day of the year an employee reaches retirement age.
If the company has a mandatory retirement system, then the retirement age and retirement date must be specified in the company’s work regulations, as required by law.
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The Present and Future of Retirement in Japan
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In 2012, the Act on Stabilization of Employment of Elderly Persons (高年齢者雇用安定法) was revised, making it mandatory to provide employment opportunities for individuals aged 65 and over. Under this revision, companies are required to implement one of the following measures:
- Raising the retirement age
- Abolishing the mandatory retirement system
- Introduce a continued employment system (such as reemployment or employment extension programmes)
According to the “2022 Comprehensive Survey on Working Conditions (令和4年就労条件総合調査) by the Ministry of Health, Labour and Welfare (MHLW), 94.4% of companies have adopted a mandatory retirement system.
Many Companies Have A Retirement Age of 60 Y.O.
Among the companies in Japan that have implemented mandatory retirement systems, 96.9% have set a uniform age, and of these, 72.3% have the uniform retirement age at 60 years old. The following table summarises the retirement ages and the percentage of companies by size (based on the number of employees):
|
Company Size by |
Retirement Age Group |
||||||
|---|---|---|---|---|---|---|---|
|
60 |
61 |
62 |
63 |
64 |
65 |
66+ |
|
|
Overall |
72.3 |
0.3 |
0.7 |
1.5 |
0.1 |
21.1 |
3.5 |
|
1,000+ |
79.3 |
0.7 |
1.1 |
0.9 |
0.2 |
17.1 |
0.7 |
|
300 ~ 999 |
81.7 |
0.5 |
1.1 |
1.9 |
0.4 |
13.8 |
0.2 |
|
100 ~ 299 |
76.6 |
0.6 |
0.6 |
1.3 |
0.1 |
19.2 |
1.6 |
|
30 ~ 99 |
69.8 |
0.2 |
0.6 |
1.6 |
- |
22.5 |
4.5 |
Among companies with a uniform retirement age, the percentage of companies who have set the retirement age at 65 or above have reached 25.4%, marking a record high since 2005.
Retirement Age May Be 70 Y.O. in the Future
The Act on Stabilization of Employment of Elderly Persons was revised again in 2020, adding a new measure called the “Measures to Secure the Employment of an Elderly Person (高年齢者就業確保措置)”, which requires companies to make efforts to ensure employment opportunities up to 70 years old.
If Japan’s declining birthrate and ageing population continue to progress, there is a possibility that the mandatory retirement age could be extended to 70 years old in the future. In fact, a company has already started to make the move.
As reported by The Asahi Shimbun on August 1st, 2024, one of Japan’s biggest life insurance companies, Meiji Yasuda Life Insurance Co. has announced its plans to raise its retirement age from 65 to 70 years old. The company will hold talks with its labour unions and aim to implement the new system from 2027. Prior to this, in 2019, the company has extended its retirement age from 60 to 65.
It is possible that we may see more Japanese companies making such changes in the near future to secure experienced staff.
※ MHLW, “高年齢者の雇用”, “令和4年就労条件総合調査 結果の概況”, “高年齢者雇用安定法の改正～70歳までの就業機会確保～” ※ The Asahi Shimbun, “Meiji Yasuda to extend forced retirement age from 65 to 70” [2024.08.01]
Why is the Retirement Age getting extended in Japan?
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1. Increasing Number of People Wanting to Work After Retirement
According to the MHLW’s “2020 White Paper on Health, Labour and Welfare (令和2年版厚生労働白書)”, the employment rate of people aged 65 and over in Japan has increased significantly through 1989 to 2019. About 40% of respondents expressed a desire to continue working even after turning 70.
The Cabinet Office’s “2022 Survey on Elderly Health (令和4年度高齢者の健康に関する調査結果)” found that the most common reason for continuing to work after retirement was “to earn income” (41.6%)". Followed by “working is good for health and prevents ageing” (20.2%) and “work itself is enjoyable and gives vitality” (17.0%). Additionally, 4.0% cited “the opportunity to gain friends and colleagues through work”. The extension of the retirement age aligns with the needs of elderly individuals who wish to remain employed.
2. Bridging the Gap Between Retirement and Pension Payments
Another reason for extending the retirement age is to eliminate the gap between retirement and the start of pension payments.
Since 2013, Japan has been gradually raising the age at which pensions are paid, with plans for the final stage to shift the age from 60 to 65 years old. Once the shift takes place, if retirement remains at 60, there would be a period during which retirees do not receive pension benefits.
To address this gap, a plan was developed to raise the retirement age by 2025, when the pension eligibility age for men becomes 65. For women, the shift will take place 5 years later, in 2030.
3. Labour Shortages Due to Declining Birthrate and Ageing Population
Another reason for the extension of the retirement age is to address the labour shortages caused by Japan’s declining birthrate and ageing population. The working age population (15 to 64 years old) in Japan has been decreasing, and fewer individuals are expected to join the workforce in the future.
If labour shortages persist, the burden of pensions and taxes on those working will increase. For companies, a lack of workforce poses serious challenges, potentially forcing them to scale down operations. Raising the retirement age helps secure labour, benefitting both workers and companies.
※ MHLW, “令和2年版厚生労働白書”, “いっしょに検証！公的年金～財政検証結果から読み解く年金の将来～” ※ Cabinet Office, “令和4年度高齢者の健康に関する調査結果（全体版）”
Systems that Allow People to Work Even After Retirement
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In Japan, reemployment systems and employment extension systems allow individuals to continue working after reaching the mandatory retirement age.
According to the MHLW’s “2022 Comprehensive Survey on Working Conditions (令和4年就労条件総合調査)”, the percentage of companies with mandatory retirement systems that have implemented either reemployment systems, employment extension systems, or both, is as follows:
|
Company Size |
Companies Offering |
Companies Not |
|||
|---|---|---|---|---|---|
|
Reemploymen |
Extension |
Both |
Total |
||
|
Overall |
63.9 |
10.5 |
19.8 |
94.2 |
5.8 |
|
1,000+ |
79.8 |
5.5 |
10.3 |
95.6 |
4.4 |
|
300 ~ 999 |
76.8 |
5.1 |
13.0 |
94.9 |
4.1 |
|
100~299 |
67.9 |
7.7 |
19.4 |
95.1 |
4.9 |
|
30 ~99 |
60.9 |
12.0 |
20.9 |
93.8 |
6.2 |
As the table shows, 94.2% of companies with mandatory retirement systems have either reemployment, employment extension, or both systems in place. Below, we will explain these two systems.
Reemployment System (再雇用制度, Saikoyou Seido)
Under the Reemployment System, retired employees can sign a new employment contract with the company. In cases of reemployment following mandatory retirement, the employee typically loses their position prior to retirement, and is rehired under a different employment contract, such as a contract worker or part-timer. Conditions such as workdays and hours can be adjusted for reemployment.
Among companies with mandatory retirement systems, 63.9% have implemented the reemployment system.
Employment Extension System (勤務延長制度, Kinmu Enchou Seido)
Under the employment extension system, employees are retained without significant changes to position, salary, or job responsibilities. Retirement benefits are paid at the end of the extension period.
This program was originally designed to address situations where a replacement could not be found for an employee nearing retirement, or where the retirement of a key employee would disrupt business operations.
The percentage of companies adopting only the employment extension program is 10.5%, making it less common than the reemployment program.
Companies that Set Maximum Age for Employment
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The maximum employment age (最高雇用年齢, Saikou Koyou Nenrei) refers to the upper limit on the age of employees that a company will employ. Companies that implement reemployment or employment extension systems may set a maximum employment age separate from the retirement age.
Based on the MHLW’s “2022 Comprehensive Survey on Working Conditions (令和4年就労条件総合調査)”, the following table summarises the percentage of companies that have or have not set a maximum employment age.
|
Company |
Companies with |
Companies without |
||
|---|---|---|---|---|
|
Maximum |
Total |
|||
|
65 |
66+ |
|||
|
Overall |
64.7 |
31.7 |
55.1 |
44.9 |
|
1,000+ |
53.4 |
41.0 |
76.4 |
23.6 |
|
300 ~ 999 |
67.8 |
23.8 |
61.2 |
38.8 |
|
100 ~ 299 |
64.6 |
34.2 |
55.1 |
44.9 |
|
30 ~ 99 |
64.8 |
54.5 |
54.5 |
45.5 |
The proportion of companies implementing reemployment and employment extension systems is the highest since 2005.
Comparison of Mandatory Retirement Systems in Japan and Overseas
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In countries like the United States, Canada, and the United Kingdom, mandatory retirement is generally prohibited except for certain professions. Employees are free to decide when to retire, and companies are not allowed to dismiss employees based on their age.
Countries with mandatory retirement systems include Germany and France. Both nations have plans to gradually raise the retirement age, similar to Japan. In Germany, the retirement age is set to increase to 67, while in France, it will rise to 64. This indicates a growing global trend of extending retirement ages.
To Close
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The Act on Stabilization of Employment of Elderly Persons was amended in 2012, making it mandatory to secure employment for individuals aged 65 and older. A further amendment in 2020 established an obligation for companies to make efforts to provide employment opportunities up to the age of 70.
Due to the effects of Japan's declining birthrate and ageing population, labour shortages persist. To address this issue, the retirement age is being raised to help secure the necessary workforce.
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