Sunday 14 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023

THE debate over a recent call to extend the retirement age of employees in Malaysia to 65 remains heated, with proponents suggesting there is little choice in the matter given the average retiree’s paltry savings and greater life expectancy and naysayers side-stepping the issue. Objective voices point to the constraints, particularly Putrajaya’s inability to shoulder the additional expenses for the huge public sector.

Last week, the Malaysian Association of Social Protection Contributors’ Advisory Services (SPCAAM) urged the government to raise the retirement age from 60 to 65 for employees in both the public and private sectors who choose to continue working, to ease the economic strain on both the individual and the nation, although mainly the former.

Citing data from the United Nations Population Division, which shows a 50% increase in global life expectancy at birth for both sexes from 46.5 years in 1950 to 71.7 years in 2022, SPCAAM said ageing folk struggle financially upon retirement and that extended employment for workers past the retirement age of 60, which is usually done on a contractual basis, tends to give rise to exploitation.

In ensuant statements, the Malaysian Employers Federation argued that extending the retirement age to 65 could heighten the rate of youth unemployment and lead to a decrease in human capital in the future.

Meanwhile, the Employees Provident Fund (EPF), responding in part to another report, refuted speculation of a cash crunch building up in the retirement fund and that an amendment of the EPF Act prevented retirees from withdrawing their savings.

SPCAAM subsequently said “certain business groups” failed to address the core of the issue, being the social and economic plight of the elderly. When contacted by The Edge, the Ministry of Human Resources declined to comment on the matter.

Advocating for a further extension of the retirement age is not new. For civil servants, the retirement age was raised from 55 to 56 in 2001 before being increased to 58 in 2008 and 60 in 2012, unleashing considerable consternation even then.

“Two years ago, when 7% of the Malaysian population turned 65 years and above, many advocated for a similar increase as well as passing a Senior Citizen Act in preparation for our transition to an ageing society,” Monash University Malaysia School of Business Prof Dr Niaz Asadullah, who is also the Southeast Asia lead at the Global Labor Organization, tells The Edge.

To this end, Women, Family and Community Development Minister Datuk Seri Nancy Shukri said last Friday that the Senior Citizens Bill, whose purpose is to protect the rights of the elderly, is expected to be presented next year. She added that the ministry was in the midst of reviewing the National Action Plan for Senior Citizens.

“Demands for a flexible labour market that boosts labour force participation across the elderly population have further intensified in the context of post-pandemic recovery efforts. Considering everything, an increase in the retirement age is inevitable,” Niaz continues.

“I would however advocate for gradual adjustment by 2030 instead of a sudden increase from 60 to 65 years — similar to what Singapore did, increasing the retirement age from 60 to 62 in 1999 and avoiding any big changes over the next 20 years.

‘Can the government afford it?’, civil service workforce a major concern

“Previous governments have side-stepped questions arising from a longer life expectancy. I do not know how long these issues can be avoided,” says Malaysian Institute of Economic Research (MIER) senior fellow Dr Shankaran Nambiar.

Economists whom The Edge spoke to agree that an extension of the retirement age is needed and inevitable, but point to the foremost constraint preventing its implementation — Putrajaya can ill afford it.

“[For one,] the treasury does not have the money to pay for the [public sector’s] salaries until age 65. It has to address the future generations too at a time when the unemployment and underemployment rates are threatening to soar,” remarks Asia Europe Institute professor of economics Datuk Dr Rajah Rasiah.

He says that even though the present unity government has shown strong people-leaning policies and an orientation towards accountability, it is also pressured to not tilt its budget too much into the red.

“I believe Malaysia’s revenue-gross domestic product [bottomed out] at 10.5% of GDP in 2022, which is the lowest among Southeast Asian economies. The government has substituted the issue of [extending the retirement age with handouts] by offering the hardcore poor RM2,500 + RM600 and a smaller amount for those above the poverty line,” says Rajah.

“In fact, the government raised the poverty line income in its Budget 2023. This is clearly better than allowing the public to draw down further from their EPF accounts, which is savings meant to support them in their retirement years. Under these circumstances I do not think the government is ready to raise the retirement age to 65.”

He believes that Putrajaya is better off tackling the nation’s anxiety over the rising cost of living by imposing stringent measures on corruption and monopolies, and ensuring that subsidies reach only those who qualify for them.

The economists believe that extending work life could mean fewer recruits for Malaysia’s already swollen civil service workforce and creating resentment among younger civil servants when their career advancement opportunities are limited.

Note that RM58.2 billion — or 38.4% of the total operational expenditure of RM151.6 billion — that went towards remunerating public sector workers in 2010, ballooned to a whopping RM114.9 billion, or 52.3%, in 2021, according to the Fiscal Outlook and Federal Government Revenue Estimates 2023. This is expected to hit RM119.8 billion, or 44% of the total operational expenditure, this year.

“The federal authorities should therefore review, discuss and debate the full range of alternative retirement and re-employment provisions in parliament and at various public forums. The proposed measure need not be limited to a mere increase in mandatory retirement age,” says Niaz.

He emphasises that Malaysia’s accelerated transition to a high-income nation requires an active labour force while ensuring the social security of workers in and outside the formal economy.

“The proposition for changes related to the retirement age has to be framed in the larger context as one that is simultaneously pro-business and worker-friendly. Only after that, Putrajaya would need to be presented with a winning proposition that creates responsible re-employment provisions for elderly citizens,” he says.

To this end, advocates have stressed that retaining experienced and healthy workers can help maintain productivity levels and save costs by reducing the need to hire and train new employees, while creating opportunities for active ageing and reducing financial insecurity later on in life.

Responsible institutional provision for old age employment

According to the World Bank, Malaysia’s dependency ratio of 43 in 2021 pales in comparison with that of advanced countries such as Japan, the UK and the US, which range between 53 and 71. 

The dependency ratio is a demographic measure of the financial pressure on the working population in a country. The higher the ratio, the more non-workers there are relative to the number of workers.

“The figure for Malaysia, though not yet alarming, is projected to increase to 50 in two decades. Besides, this is just one of the indicators. We need to account for other factors such as fertility rate and life expectancy. Singapore, for instance, is at an advanced stage of population ageing, owing to rapid fertility decline and one of the highest life expectancy rates in the world,” says Niaz.

The nation across the Causeway tends to be regularly referenced for its provision of employment for the elderly. Singapore Prime Minister Lee Hsien Loong has reportedly said that by 2030, the current retirement age of 63 will be extended to 65, and re-employment from 67 to 70.

For context, Singapore’s current relatively higher retirement age of 63 is aligned with the country’s changing demographics. The government’s National Population and Talent Division in its annual Population In Brief report last September estimated that one out of every four citizens will be aged 65 and above by 2030. The number of citizens aged 80 and above has increased by more than 70% from 2012 to 132,000 and make up 3.7% of the population today.

Similar ageing trends are seen in other Asian societies such as Japan and South Korea, as well as G7 nations — Canada, France, Germany, Italy, Japan, the UK and the US — which also record low fertility rates, United Nations data shows.

Niaz explains that unlike Malaysia, Singapore does not have a mandatory retirement age. Instead, under its Retirement and Re-employment Act (RRA), Singapore’s employment laws ensure opportunities for continued employment of older workers where employers are required to offer re-employment to eligible employees.

“This is as long as the employees are in good health and fit to perform their jobs. This is a good example of responsible institutional provision for equal employment opportunity in old age,” he says.

“In fact, many other economically advanced Asian countries such as Japan and South Korea are considering either adjusting the retirement age upward and/or instituting labour reforms to facilitate re-entry into the workforce in old age.”

June 2022 data provided by the Department of Statistics Malaysia (DOSM) shows that the composition of the population aged 0 to 14 years dipped to 23.2% from 23.6% the year before, while the population aged 65 and above increased from 7% to 7.3%. The working age group (15 to 64 years) rose from 69.4% to 69.5% in the same period.

“Going by the United Nations’ definition, Malaysia has become an ageing society where the older age population increases every year,” says DOSM.

Despite being a relatively young nation, Malaysia is in the same boat as many of its much older friends in grappling with the greying of its citizens amid lower birth rates.

“The government would be well advised to extend the retirement age. The post-retirement savings that people have is deplorable. Encouraging people to work beyond 60 will help alleviate some of the costs going into public healthcare,” says Nambiar. 

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