The Era of Getting 200 Million Won After 30 Years Is Over... A Japanese Bank's "Perpetual Department Head" Who Just Clocked In Cries Out

Years of Service Removed from Retirement Benefit Calculations; Payouts Based on Ability and Position
Applies to 10,000 Regular Employees, with Some Set to Receive More

One of Japan's major banks is scrapping its existing system of increasing retirement benefits the longer employees work there. Going forward, payouts will be determined by employees' abilities and positions rather than their years of service. The change signals a shift in Japan's seniority-based system and so-called "long-service formula," under which rewards grew the longer employees stayed at one company.

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According to the Nihon Keizai Shimbun (Nikkei) on October 28, Sumitomo Mitsui Trust Bank plans to abolish, within fiscal 2026, a system that increases retirement lump-sum payments and pension benefits based on years of service.

Previously, retirement benefits were calculated based on employees' abilities, positions, and years of service. Going forward, length of service will no longer be included in the calculation. Lump-sum payments and defined-benefit (DB) pensions will be determined based on ability and position, while defined-contribution (DC) pensions will be based on ability alone.

"How Many Years Have You Worked Here?" No Longer a Factor... Retirement Benefits to Depend on Ability and Position

The changes will affect about 10,000 regular employees, excluding contract workers. Under the new system, employees who have worked for the bank for many years but have not advanced to senior positions, such as management roles, could receive smaller retirement benefits. Conversely, some employees are expected to receive payouts at least 20% higher than before, depending on their abilities and positions.

Unlike South Korea, Japan has no uniform, legally mandated method for calculating retirement benefits. Nevertheless, many companies have paid higher retirement benefits to long-serving employees, in keeping with a workplace culture that encourages long tenure and values employees' sense of belonging and experience.

Office workers walk past Sumitomo Mitsui Trust Bank, a major Japanese company. Business Times

Recently, however, calls have grown for compensation to reflect actual job skills and responsibilities rather than years of service alone. Nikkei reported that companies are reviewing a system that increases compensation simply because an employee has been with the company for a long time, as AI rapidly replaces office work.

Japanese Retirement Benefits Once Favored Long Service... Now a "Shackle" That Discourages Job Changes

Until now, retirement benefit systems at major Japanese companies have been designed around the assumption of mass hiring of new graduates and lifetime employment. The system offers relatively low wages early in an employee's career, while wages and retirement benefits rise substantially in the later stages of their career the longer they work for one company.

According to a 2025 survey by Japan's Central Labor Relations Commission, university-educated employees in general-track positions received retirement benefits of 6.01 million yen (about 58 million won) after 15 years of service. The amount rose to 20.09 million yen (about 169.9 million won) after 30 years. In other words, after the 16th year of service, benefits generally increased by an average of about 900,000 yen (about 7.6 million won) a year.

This system was effective in encouraging long service and retaining skilled employees, but it also acted as a barrier to changing jobs. Employees who move to another company find it difficult to carry over the benefits accumulated through years of service at their previous workplace. Some have pointed out that a seniority-based retirement benefits system could undermine competitiveness, particularly when companies need to recruit highly specialized talent from outside in fields such as asset management and digital technology.

A scene from JTBC's drama "The Story of Manager Kim, Who Owns a Home in Seoul and Works at a Large Corporation." Screenshot from JTBC.

Sumitomo Mitsui Trust Bank plans to reduce the disadvantages faced by mid-career hires by calculating retirement benefits based on ability and position rather than years of service. Nikkei said the move reflects the bank's effort to revise its seniority-based compensation system and offer competitive pay to mid-career hires, given that its competitiveness depends on securing specialized talent.

Retirement Benefits Eliminated and Added to Monthly Pay... Change Spreads Across Japanese Companies

Efforts to revise compensation systems built around long service are not limited to the financial sector. Some Japanese companies are scaling back retirement benefit programs themselves, while others are paying out funds previously distributed in a lump sum at retirement earlier, through monthly salaries or bonuses.

According to Japan's Ministry of Health, Labour and Welfare, 75% of companies operated a retirement benefit or corporate pension plan in 2023, down 6 percentage points from five years earlier. Paper manufacturer Oji Holdings decided to abolish its retirement benefit program for employees joining this spring and instead incorporate the funds into their monthly salaries. Trading company Marubeni has also introduced a system allowing employees to receive some of their retirement benefits in advance as bonuses rather than waiting until retirement.

This content was produced with the assistance of AI translation services.