THE slightly longer lifespan of Malaysians today has recently brought about the debate of whether a higher retirement age should be pursued as an official policy.
While this observation is prevalent, there are concerns on the other end of this argument that officially allowing higher retirement ages may hinder employment opportunities for those who are new to the workforce.
About eight years ago, the official retirement age in Malaysia was raised to 60.
Today, it is also not uncommon to find workers in some companies here who are still employed beyond this official retirement age.
Former Youth and Sports Minister Syed Saddiq Syed Abdul Rahman had reportedly said in 2019 that the current retirement age should be retained to allow for employment opportunities for the younger generation.
There’s also a new demographic trend that the country is witnessing, which, according to the World Bank, shows that Malaysia has already transited into an ageing society as of 2020.
The World Bank Group’s country manager for Malaysia Firas Raad recently said that Malaysia may follow the path of Japan towards an ageing society.
“Malaysia passes a crucial milestone in its development trajectory and becomes an ageing society, defined per the international convention, as having 7% or more of the population age 65 and above, ” Firas said.
“But ageing also raises concerns, especially if it happens fast. The share of the population age 65 and above in Malaysia is expected to double from 7% to 14% by 2044, in just 24 years.
“Only 12 years later, the share will reach 20%. Thus, Malaysia’s ageing process is happening at a similar pace to that of Japan, ” he adds.
Firas also suggested for the retirement age to be gradually increased from 60 to 65 years old and then be linked to life expectancy after that.
“As in nearly all high-income countries, longer working lives will in turn require gradual adjustments to the minimum retirement age in line with increasing life expectancy, ” he said.
“In parallel, the minimum withdrawal age of the Employees’ Provident Fund (EPF) of 55 years old is also relatively low by international and regional standards. For example, the equivalent age in Singapore is 64, ” he noted.
Senior economist and executive director for the Socio-Economic Research Center, ACCCIM Lee Heng Guie (pic above) told StarBiz that there are pros and cons of a higher retirement age.
“Anymore increase in the retirement age might prolong the career paths of those who hardly contribute much or the ‘deadwood’ and deprive the mid-tier employees in their career path progression, ” Lee said.
“It is thus important for the government to conduct a proper study before raising the current retirement age from 60 to 65. A task force should be formed to review the proposal to raise the retirement age of public sector employees, ” Lee added.
He said the task force should have a view of rightsizing the number to optimise the delivery services and also review the pension scheme, shifting from entitlement to defined contribution to lessen the financial burden on the country’s budget.
Lee also noted that the official retirement age may need to eventually be raised further due to changing demographic conditions in the country.
“For a multitude of reasons, retirement may have to be delayed. There are many reasons for the raising of the retirement age, perhaps based on the increasing life expectancy (74.9 years) and to build a bigger nest egg for retirement.
“Ageing of the labour force would result in lower labour participation rate as Malaysia had just become an ageing country last year, ” Lee said.
He said that for the private sector, re-employment may be a more flexible approach than raising the retirement age since it allows employers and employees to work out a mutually beneficial arrangement.
“Currently what is usually done is that private employers will work out an arrangement to extend the service of employees that have reached their retirement age. It is a on retainer basis, depending on a mutual arrangement between them, ” Lee said.
With this new reality, the government would also need to balance this view with sufficient employment opportunities for the new and younger workforce.