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Sunday March 27, 2011

It is timely to consider just how old a Malaysian should be before retiring

Currently, the retirement age for public sector employees is 58. This was set before the Second World War to enable British officers serving in Malaysia to return home to England with a pension. The retirement age in the UK at that time was already 60. In Malaysia this was raised from 56 in 2005 and to 58 in 2009.

In practice, private sector employees retire at 55. This has not changed upward although the government had raised the retirement age in the public sector to 58. There are some employers who retire their employees at 60 but these are for senior employees only. Certain specific sector retire their employees much younger e.g. airlines stewardess. Quite a lot of private sector employers also retire their female employees at 50.

Contributors to the Employees Provident Fund (EPF) can only withdraw their EPF savings upon attaining the age of 55 to reflect the retirement age in the private sector.

Currently Malaysia, which has among the highest life expectancy in the world, still has the lowest retirement age.

Countries such as Singapore, Philippines, Laos, Thailand and even Brunei have extended the retirement age to between 60 and 67.

Just two weeks ago the UK abolish the retirement age i.e. companies cannot retire their employees on account of age. They can terminate employees for inability to perform the work they are hired to do.

Empirical evidence and studies have shown overwhelming support for an increase in retirement age to address the following issues:

·Rapid increase in life expectancy, changing demographic patterns and family structure

·Reducing the cost of pension and burden on governments to provide healthcare and old age welfare

·Boosting public finance by having more people paying taxes for longer periods

·Increasing the overall productivity of workers and encourage productivity-linked wage system.

·Turning the country’s economy into high-income economy

·Contributing to domestic demand and GDP and hence create more jobs. The economy will benefit from older workers’ precious skills and experience and their increased buying power.

·Ensuring adequate retirement savings when workers finally retire and reduce pressure to increase EPF contribution rates

·Reducing reliance on foreign workers. Just look at Singapore’s Changi which is efficiently maintained by workers in their late fifties and early sixties.

On the other hand, KLIA is flooded with Bangladeshi workers.

Unemployment

The concern that raising the retirement age may deny younger persons from entering the workforce is not an issue as full employment would require up to three million foreign workers.

Older workers remaining in the workforce longer actually create more employment opportunities for younger people through increase in domestic demand for goods and services.

Promotion opportunities

I do not believe that the increasing retirement age will deny promotional opportunities for younger employees. Such views are only valid in the old fashioned thinking that promotion should be based on age and seniority. Promotion must be based on relevant skills and competencies, not age.

Productivity

An employer group that has objected to increasing retirement age is Malaysian Employers Federation. They claimed that Malaysian workers nearing retirement age are deadwood and so they prefer to re-engage retired workers on a year-to-year contract. They claim employers would have to continue giving employment to the sick, unproductive workers and problematic employees.

It is very insulting to all Malaysian workers and implies that those who are 54 years old are all sick, unproductive and problematic. Productivity and efficiency is not an age issue. It is a management issue. This must be addressed whether retirement age is increased or not.

A worker may be unproductive whether he is 30, 50, 54 or 56 years old.

If that is the case, then there should not be a retirement age at all; everybody will have to be on a yearly, monthly even daily contract so that they can throw deadwood away anytime.

The benefits of an increase in retirement age to the country cannot be hijacked by those employers who have failed to manage their workforce in accordance with robust human resources management practices that they now have a lot of deadwood within their organisations.

What matters in today’s workplace is the mix of skills, experience and character that individuals bring to bear.

Older workers are generally as good as younger workers, show less absenteeism, lower turnover, fewer accidents, higher job satisfaction, and more positive work values than younger workers.

Cost and performance pay

The belief that older employees cost more is not conclusive and can be mitigated by performance pay. Even in non-performance pay salary structure, employees reach their maximum salaries before they reach 55.

Some may claim that mandatory retirement age may force employees to continue to work when they themselves don’t want to. This rely on the flawed assumption that Malaysia has a pension system (defined benefit) for private sector workers.

Those who want to continue working can easily terminate their employment with the requisite notice as stipulated in their contracts.

It is my belief, supported by empirical evidence, that setting the retirement age at 58 by Jan 1 2012 and increase it by 1 year every 4 years until we reach 62 by Jan 1 2016 is in line with the recommendation of the NEAC in our aim to be a high-income nation.

After all, in this election year, we will have candidates who are way above 55 years old.

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