Way too young to retire at 55?
By JOSEPH LOH firstname.lastname@example.org
With the lifespan of a Malaysian man projected to be 74.4 in 2025, will the individual be able to support himself into old age if he retires at 55? It may be a win-win situation if the age is extended as keeping those beyond 55 would boost the workforce.
IF MALAYSIA’S maximum retirement age is increased to 60, there could potentially be close to a million more workers to boost the nation’s workforce within five years.
Extending the “traditional” retirement age from 55 could very well be part of a solution to reduce the country’s reliance on foreign workers.
Talk is rife again that the retirement age may be extended. Cuepacs has been pushing for an increase in the maximum of the retirement age of civil servants to 60 for about 10 years. Having partially succeeded in achieving its goals twice – from 55 to 56 in 2001, and to 58 in 2008 – it is pushing the envelope further and recently made another proposal to the Government to raise it to 60.
Loss of resources: As many retirees are still in their prime at 55, their services will be much needed for national development. – AFP
According to the Malaysian Statistics Department’s Labour Force Survey Report 2008, the total number of employed persons from the age band of 50 to 54 is 872,700 while those between 55 and 59 number 476,800, or 4.5% of the total workforce of 10,659,600 in the country.
Although there is no fixed statutory limit for retirement for Malaysia, there are inferences to the age of 55 in other legislation.
“For example, the EPF act says you can withdraw your savings when you reach 55. Additionally, the Employees’ Social Security (Socso) Acts say once you reach 55, you are no longer eligible for an invalidity pension. These are the things that have led the country to adopt 55 as the retirement age,” says Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan.
Cuepacs president Omar Osman believes that raising the retirement age is the way forward for the country.
“Most other countries, regionally and globally, have fixed the age at 60 or later. Malaysia is one of the few countries where the working population retires relatively early. The time is ripe to raise the age to 60 so we can be brought in line with other countries,” he says.
Shamsuddin says that 80% of the private sector sets the age at 55.
“It was set in the context of the 1950s, where the life expectancy at that time was lower than 55. So people did not even live to retirement age then,” he says.
However, recent statistics show that life expectancy among Malaysians has increased dramatically. For men, it was 47 in 1950, rising to 66 in 1980, 70.8 in 2000 and is projected to be 74.4 in 2025 (women tend to live about five years longer).
The issue that arises from a longer life span is the ability of the individual to support himself into old age.
“If we stick to 55, then we have a gap of about 20 years for the individual to live. How will they support themselves for that period?” he says.
Shamsuddin says the majority of people in the private sector tend to rely solely on their EPF savings, and most the time it is insufficient.
According to EPF statistics, members have an average savings of RM132,539.78 at age 55. Given that an individual can live for about 20 years after retiring, this only leaves him with a mere RM552 per month to live on.
“This is below the national poverty line of RM750,” says Shamsuddin, qualifying that the figure is for the total household income.
However, he informs that if a person was to work for an additional five years, his savings would go up by about RM40,000.
“With the additional savings, he would have just over RM700 per month, which is still below the poverty line, but it is better,” he says.
Dr Jariah Masud, senior research fellow, Gerontology Institute, Universiti Putra Malaysia, brings up the point that Malaysians are starting families later in life than before.
“They may still have school-going children at retirement, and there is no comprehensive social protection system or a universal pension scheme. Furthermore, Malaysians, generally speaking, do not do much financial planning for retirement,” she says.
One point that constantly arises is the loss of human capital if people retire at 55.
Dr Jariah opines that with a population of about 28 million, Malaysia’s human resources are limited, and their continued service will be useful for national development.
Omar adds that training a new set of workers to take over from retired posts will incur a high cost, and it would be prudent to keep the experienced in service for longer periods.
“Anyway, it is a waste to train a person up to a high level and then let them go early,” he says.
Dr Jariah says that logically, those at the tail end of their careers have vast experience behind them, and are naturally better at their jobs than those with fewer years of experience.
In a study conducted by the university, 96.3% of respondents acknowledged that older people have amassed considerable expertise and skills.
“Take educationists, for example. Professors and lecturers with 30 years of teaching behind them are better than those with just five. Provided, that is, that they stay in the same organisation,” she says.
Omar shares the opinions and gives the example of judges where experience is crucial.
“Everybody can work, but how the younger people solve a problem compared to the older generation is different,” he says.
Dr Jariah believes that if they were to continue working, they need not necessarily be employed in the same position, and even their roles in the organisation could be changed.
“They can be turned into mentors and trainers, and be a model for the younger generation. That would be better than waiting for them to retire and then looking for new workers. It is also their obligation to transfer knowledge to younger workers so there is continuity,” she says.
However, Shamsuddin is not in favour of a blanket increase in the retirement age.
“Companies will be saddled with a higher cost of medical treatment for employees. Older workers usually draw a higher salary, so wage costs are also going to increase. There is also the possibility that their performance and productivity will go down,” he says, adding that the current system of a contractual re-employment, as practised currently, works well.
However, Omar says Cuepacs wants to do away with the contract system in Government service.
“People do not like having yearly contract extensions, and the extra paperwork is also a burden to the Government. We want people at every level to be in full service, and not on contract. It also brings unnecessary worry to the worker.
“Furthermore, there can be some resentment in the staff if the leaders are getting both a pension and a contract salary,” he says.
There is also the worry that retaining older workers will saturate the job market and deprive fresh graduates of employment, and career advancement opportunities for those already in employment.
Omar does not see any basis for that argument.
“Since the age limit was raised two years ago, this has not been an issue. Furthermore, in government service there are many avenues for career advancement,” he says.
Dr Jariah says that the younger generation should be innovative enough to find and create jobs for themselves rather than aim for the one or two top posts.
“Extending the retirement age does not mean depriving the younger generation. There are many opportunities out there, and it is better to look for those rather than wait for people to retire,” she says.
Shamsuddin sees things in a different light and believes that while there are opportunities, it may not be the right one for the individual.
“Currently, for graduates coming out of university, getting the employment suitable for their qualifications is a challenge. There is a lot of latent employment – they may be employed but not to the full capacity of what they should be,” he says.
Another worry is if the employee in question is not productive, and an organisation is saddled with his wage bill without returns on the investment.
Dr Jariah believes that salary should be commensurate with ability and productivity
“It can be measured with a KPI, and the mindset has to be changed. At the moment we always equate position with salary,” she says.
While Shamsuddin has some reservations on extending the retirement age, he agrees with the concept.
He says that in order to facilitate this, wholesale changes are needed in the employment structure.
“It needs a lot of thorough planning, and the Government needs to put things in place. They can offer incentives for companies to re-employ them, so there is less resentment among employers,” he says.
Giving the example of medical costs, Shamsuddin says that companies could be allowed to obtain double tax relief for medical costs.
“Given that retirees will probably go to public hospitals, the burden is on the Government. With this incentive, companies are bearing the costs instead,” he says.
Incentives should be given to employees as well.
“The Government should consider a maximum tax bracket of 15% instead of 27%. If they can give this incentive to workers in Iskandar Malaysia, why not to the others?” asks Shamsuddin.
Dr Jariah says the current employment structure is not ready for an elderly population
“We have a system that is very rigid and bureaucratic. Some may not want to work full time three days a week; but now they have to work full-time or a five-day week,” she says.
Omar says that Cuepac’s proposal has been submitted and the nation awaits the Government’s decision on the matter.
“There are many benefits to having a later retirement age. We have been discussing it for a long time, and our request is under consideration. When the time is ripe, they will announce it. It is up to the Prime Minister,” he says.