Malaysia - Pushing back the retirement age

THE debate swirling around the Government's intention to officially set the private sector's retirement age at 60 raises a number of questions, none of which are new.

The Government's move comes after the proposal to raise the civil service retirement age to 60 from 58 last October.

According to reports, the Private Sector Retirement Age Bill will be tabled in parliament soon, with provisos to allow those who reach 60 to renew up to 64 and may contain a clause allowing people to retire earlier.

At present, the Employment Act 1955 does not state any age for retirement, while the only regulation on age is the withdrawal of the Employees Provident Fund (EPF), which is set at 55 under the EPF Act 1991.

Those who object to a higher retirement age from new entrants to the workforce, to industry lobby groups have set out their concerns before. Top on the list of worries for young job seekers is the fear of fewer job opportunities should those employed be retained for a longer period.

For employees with aspirations, a common grouse is that they may have to wait a little longer for their promotions and sit in that coveted corner office while for employers, costs play a big role.

However, job seekers and employees are wrong to believe that pushing up the retirement age for the private sector (or for the public sector for that matter) will necessarily mean fewer employment or promotion opportunities.

This “fallacy of labour scarcity”, as UCSI University academic and political analyst Dr Ong Kian Ming tells StarBizWeek, is not true.

Rather, it is the role of the Government to facilitate a conducive environment for firms to invest so that job opportunities opens up while talented and experienced employees have a chance to rise up the corporate ladder as businesses expand.

Deloitte Consulting Malaysia executive director Andrew Lee says a recent study in Britain shows that a one-year extension of working life implemented increases real gross domestic product by around 1% after about six years following its implementation.

“On the upside, two benefits are immediately clear. Firstly, because people work longer, raising the retirement age increases revenues coming into the social security system. Secondly, because people retire later, the payout to retirees falls,” he says.

Yes, there will be some lag in job opportunities in certain industries when people are retired later. For example, in the US aviation industry, pilots have to wait longer for promotion to captain because of the increase in retirement age for captains to 65 from 60.

A recent Bloomberg report quoting an industry hiring expert says “first officers are finding it more difficult to get promotions as the higher retirement age for captains creates a logjam at the top of the chain”.

Lee says the study shows that while there may be a temporary increase in the unemployment rate as the economy adjusts to an expansion in the labour force, after four years all the additional labour will be absorbed.

“Consumption will also rise more than output, as savings could be lower given that people face shorter periods of retirement,” he says.

When the bill to set a higher retirement age for the private sector becomes law, the pressure will be on the Government to really work hard to convince firms to expand their businesses in order that the job targets under the Economic Transformation Programme (ETP) can be achieved.

Since the private sector employs more than 90% of the close to 13 million-strong workforce, with the small medium enterprises (SMEs) accounting for more than 60% of employment, changes to make the economy more competitive will be crucial, as these changes will lead to job creation.

In other words, the Government will need to focus on reforms to dispel the lingering negative perceptions that hobble private sector investment and participation in the economy since much of the ETP investments so far is coming from public funding and the government-linked companies (GLCs).

Indeed, at a time when people need all the upbeat news they can get, the 20,000 jobs to be created for the East Coast Economic Region from the RM9bil pledge in investments recently announced should be incentive enough to spur reforms.

More needs to be done

Part of the convincing will come via implementing reforms recommended in the New Economic Model (NEM), which addresses long-term issues and is the blueprint for the country's economic transformation.

However, observers say the cross-cutting reforms are not being implemented fast enough, with the Government more focused on the project-based initiatives of the ETP as represented by the National Key Economic Areas.

As Bangkok-based World Bank senior economist Frederico Gil Sander points out in an email reply, the project-based approach under the ETP is likely to continue to generate improvements to Malaysia's business environment but there is a risk that the country will focus more on improving the environment without addressing the more difficult domestic structural challenges to competitiveness identified in the NEM.

“The largest gains for Malaysia at this time will come from addressing structural constraints through accelerated implementation of the Strategic Reform Initiatives (SRIs) rather than further improving the business environment (although of course both can and should be pursued in parallel),” he says.

The SRIs, whose final form came out last July, identifies public finance reform, the Government's role in business, human capital development, public service delivery, international standards and liberalisation and bumiputra SMEs as areas to focus on to boost competitiveness.

Sander says the ongoing efforts to address issues of regulatory and administrative constraints are noteworthy, citing Pemudah's (the task force empowered to facilitate business-government dealings) success in bringing the Government and private sector in dialogue.

He says the strong involvement on both sides together with the trust that has been built over several years, willingness to go deep into the issues and ability to work with the implementing agencies to develop practical solutions are reflected in Malaysia improving five places in the World Bank's 2011 “Doing Business” survey.

But there certainly are some doubts in the private sector in regards to investing despite a number of high profile multi-billion ringgit projects that have been rolled out such as the central Klang Valley's My Rapid Transit and the Refinery and Petroleum Integrated Development or Rapid hub in Pengerang, Johor.

The doubts may be the reason why in the first year of the ETP, the private sector's share of investment amounted to 35% with GLCs share at 40% and the Government's at 25% of the RM176bil of committed investments.

This is in contrast to the original target of the ETP for investments, which was a ratio of 60% from the private sector, 32% from the GLCs and 8% from the Government.

Some of these doubts, especially the uncertain political climate due to the impending general election, are beyond the Government's control but others are a symptom of the lack of political will in carrying on with the reform agenda.

Ong says that there are questions over whether investors will be allowed to invest in all sectors of the economy.

“They will want to know whether GLCs will get preferential treatment,” he says, adding that investors will also naturally want to diversify into other markets as part of risk-management and in the pursuit of higher returns.

Ong says in the case of SMEs, many of them do not depend on government contracts as they concentrate on exports and being part of the supply chain of the private sector.

He says a case in point is that not many private operators have gone into the 27 sub-sectors of the services sector even following its liberalisation in April 2009 as “there are lingering doubts about unfair practices”.

Nevertheless, despite the various issues raised, some form of rise in the retirement age for the private sector will eventually be adopted. It's only a matter of the timeline for implementation and the main provisions of the legislation.

An ongoing exercise

Malaysian Employers Federation executive director Shamsuddin Bardan says negotiations among the various stakeholders are still ongoing and that they are looking through the draft of the bill.

“I believe the Government will go ahead and table the bill in parliament soon,” he says, adding that while there were reservations over several issues, in general most employers supported the higher retirement age.

“60 is just about the right age for retirement but there are many who have made plans to retire at 55, so a proviso for those who want to opt out should be included,” Shamsuddin says.

Shamsuddin says because the employment landscape has been shaped by labour laws of the 1960s and 1970s, employers needed time to implement the new law when it is passed.

Besides having to pass the legislation on the higher retirement age, he notes that the EPF Act and the Employees Social Security Act 1969 will also need to be amended to reflect the changes in the retirement age.

According to him, the main concern of the MEF members is that in the labour-intensive industries, health and other age-related factors may affect the productivity of workers.

“We're asking for escape clauses as we believe that the higher retirement age should not apply to all industries,” Shamsuddin says, adding that companies' succession and promotion plans may have to be changed too as senior executives stay on.

He says that comprehensive job retraining programmes should be implemented in those industries where workers' productivity may be affected by age-related factors.

However, Deloitte's Lee says an older workforce can play a significant role in leadership mentoring. “Some things in life just can't be taught except through experience.

“Since leader-readiness remains a top issue for most corporations, an older workforce with leadership capacity fills an important space in any organisation,” he says.

Lee adds that older employees can be contracted on time-bound arrangement to play advisory roles in operations and planning. “The recent Tan Sri Hassan Merican's contribution to Singapore Power being case-in-point,” he says.

Meanwhile, Robert Walters Malaysia country manager Sally Raj says in an email reply that in Singapore, there is some flexibility to the retirement age for both public and private sectors.

She says that the Singaporean government recently announced that public sector employees such as the police, civil defence and the armed forces as well as cabin crew of commercial airlines continue to be exempted from the new Retirement and Re-employment Act.

The retirement age was raised from 55 to 62 in Singapore, with further plans to raise it to 67.

“Perhaps Malaysia could take a leaf from Singapore's steps in allowing some flexibility in the retirement age particularly for certain professionals within specific professions where experienced staff are severely lacking,” Sally says.

FINTAN NG

The Star

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