Will retirement age hike work?

THE proposal by Law and Institutional Reform Minister Datuk Seri Azalina Othman Said to raise the mandatory retirement age from 60 to 65 presents both opportunities and challenges for the nation’s workforce and economy.

The proposal highlights several compelling advantages.

First, many 60-year-olds remain healthy and can contribute to the workforce.

This is evident in neighbouring countries like Singapore and the Philippines, where the retirement age is 62 and 65, respectively.

Vietnam plans to incrementally raise its retirement age for men to 62 by 2028 and women to 60 by 2035. This reflects a regional trend towards extending work life.

The proposal also aligns with Malaysia’s demographic and economic realities.

Falling birthrates, coupled with a longer life expectancy, have placed financial strain on retirees, many of whom lack sufficient savings.

Raising the retirement age could alleviate these pressures without creating significant political or social backlash.

This is especially true given the current low unemployment rate of 3%.

This ensures that extending the retirement age would not deprive younger generations of employment opportunities.

Economic sustainability is another key consideration.

Retirees typically consume more than they earn, relying on savings, asset appreciation and government transfers funded by younger taxpayers.

By 2030, Malaysia is projected to become an aged nation, with 15% of its population aged 60 and above. This figure is expected to rise to 17%, or 6.4 million people, by 2040.

Extending the retirement age could help mitigate financial challenges posed by an ageing population. For many Malaysians in the private sector, retiring at 60 is not a viable option.

This is due to factors such as inflation, low wages and pandemic-related savings withdrawals.

According to Employees Provident Fund’s (EPF) BelajawanKu Expenditure Guide 2024/2025, a senior couple in the Klang Valley requires RM3,390 monthly for a sustainable life.

However, nearly half of EPF members under 55 had savings of less than RM10,000 at the end of 2021, with 3.6 million holding less than RM1,000.

The strain on the civil service pension system further underscores the need for reform.

Approximately 32% of the national budget is allocated to emoluments, and the Kumpulan Wang Persaraan (Diperbadankan), tasked with managing civil service pension payments, faces a trillion-ringgit asset-liability mismatch.

Despite these merits, the proposal has its detractors.

One major concern is the reduction in lifetime pension benefits for individuals who cannot or choose not to work beyond 60.

Extending the retirement age effectively diminishes the value of these benefits, particularly for low- and middle-income workers.

The policy could also exacerbate income inequality.

High-wage earners, who are better positioned to continue working and saving, would benefit from the compounding effect of extended employment, widening the gap between the rich and the poor.

Private sector resistance presents another hurdle.

While raising the retirement age for civil servants might be more straightforward, private employers may resist due to concerns about productivity and the rapid evolution of technology in the workplace.

Many private companies prefer voluntary work extensions, allowing employees to work beyond 60 through mutual agreement, without legal mandates. A staggered approach would seem more acceptable.

Initially raising the retirement age by two years, with the option for the remaining three years to be implemented at the discretion of companies over the next decade, could strike a balance between economic sustainability and employers and employees’ concerns.

While Azalina’s proposal offers potential solutions to pressing challenges, its implementation must carefully consider the diverse needs and concerns of all stakeholders involved.