What if there were no retirement age?

Sep 4, 2010

The reactions to Minister Mentor Lee Kuan Yew?s recent remark that Singaporeans should not retire but work as long as possible have ranged from surprise to incredulity to puzzlement. What does he really mean? What are the implications for employers and workers? Is it feasible or just hypothetical?

By Rachel Chang

IT WAS a bold move. Like Daniel in the lions' den, Minister Mentor Lee Kuan Yew walked calmly into a roomful of managers and employers and declared that 'there should be no retirement age'.

Press reports noted that the 900-strong audience at the Singapore National Employers Federation (SNEF) summit held about a month ago, laughed knowingly. After all, Mr Lee is the most famous Singaporean to whom retirement age is just a number.

But for many employers, the prospect of a Singapore with no statutory retirement age would elicit laughter of the nervous kind.

They are already faced with the daunting challenge of implementing re-employment practices in time for the 2012 legislation that will compel them to rehire workers at the age of 62 until 65.
Reflecting the sentiments of many bosses, On Cheong Jewellery managing director Ho Nai Chuen says: 'He may not have meant what he said seriously.'

[Oh yes, he did.]

Scrapping the retirement age is not a new idea. Many developed countries are struggling with the one-two punch of an ageing workforce and the inadequacy of pension funds, and raising or getting rid of the retirement age is a favoured solution.

But it would also, in one fell swoop, upend the structure on which the labour market is built.

Employers say it would laden them with an army of older workers, wages inflated by seniority, with no easy way to remove them from the ranks. In reaction, they may hire more workers on contract to maintain their freedom to hire and fire with ease - a move that would inject considerable uncertainty into the labour force.

It is unlikely that Mr Lee was envisioning such a brave new world. But in an e-mail interview with Insight, the elder statesman made it clear that his comment was not just metaphorical.
What he said about no retirement age, he elaborated, should apply to the entire workforce, not just to top-tier talent or middle management and professional ranks. 'If a man is physically fit and can still do his work, he should be allowed to do so,' he said.

But harnessing the experience and skills of older workers is only one facet of the discussion on the retirement issue. More pressing is the way the Singapore labour force is evolving.

The workforce is ageing: The median age of residents has been on an upward trajectory - from 24 in 1980, to 30 in 1990, to 34 in 2000. Now it is 37.4.

Today, just one in 12 Singaporeans is aged 65 or older. By 2030, the ratio will be one in five.
The Government has also signalled a clear tightening of its foreign worker policy, giving employers less space to manoeuvre when it comes to manpower needs.

Add to the mix the very real possibility that Central Provident Fund (CPF) savings are inadequate in providing a basic livelihood for someone who retires at 62 and lives until his 80s - as this generation of baby boomers is likely to - and the idea seems less and less far-fetched.
Remember that the statutory retirement age is only a 17-year-old institution, introduced with the Retirement Age Act in 1993. It was set at 60 then, and raised to 62 in 1999.

If the country had functioned without a retirement age before, it can do so again. So why all the fuss?

Employers' fears

WHAT the concept of a statutory retirement age means is that employers cannot discriminate against workers based on age before the cut-off point of 62.

But the significance is really the implication that employers can freely dismiss a worker for reasons of age after 62 with no consequences - a bottom line measure managers prize dearly.
A retirement age also gives workers some measure of security, in the sense that there is a stipulated milestone at which one's contribution to the company is evaluated; one's fortunes do not rise and fall from year to year, project to project.

As UniSIM senior lecturer Randolph Tan explains: 'If there is no national legislation on what age workers retire at, then the age that each worker stops work would have to be negotiated on a case-by-case basis.'

This means a set-up where workers are constantly being evaluated, regardless of age. 'Workers wouldn't be able to 'cruise' in the absence of a retirement age, because the employer is always thinking 'Do I want to keep this guy?'' he says.

Dr David Ulrich, a business professor at the University of Michigan, concurs: 'Job security may actually go down, which is counter-intuitive.'

A speaker at the forthcoming Singapore Human Capital Summit, Dr Ulrich notes that the lack of a retirement age may affect, in particular, mediocre employees in their 50s.

'An employee a few years away from retirement may be allowed to stay on because retirement is close,' he says. 'Without that deadline, managers may let employees go sooner if they are not producing.'

Apart from incurring additional administrative costs, employers argue that there would be a substantial fallout in terms of lowered morale.

Mr Ho of On Cheong says that the retirement age gives older workers 'the platform from which to step down'.

If not, the dismissal process is unwieldy, embarrassing and fraught with recrimination. Workers will compare the age at which they are asked to leave; there is no 'graceful' way for long-serving employees to age out, says general manager Alexander Melchers of trading company Melchers.

Losing a nationally negotiated retirement age could impose a costly burden on employers.

Now there are two ways in which an employee leaves a company not of his own accord: dismissal and retrenchment.

Dismissal, premised on the worker having failed in one way or another, comes on the employer's terms and need not cost much in terms of a severance package. But it is a cruel way to get rid of an older worker: Even if no longer productive, he has given decades of his life to the company.
The other option is retrenchment, which an employer invokes when his company has no room for the worker because of restructuring, downsizing and the like. But it is almost prohibitively expensive.

It is a common practice for a Singapore company to give a retrenchment package of half a month to a month's pay per year of service.

So, in the absence of a statutory retirement age, a rank-and-file worker earning $5,000 a month and who has been with the company for 30 years will receive a retrenchment package of between $75,000 and $150,000.

Contrast this with the current guidelines from the Government: If a company cannot find re-employment for a worker who has reached the age of 62, an assistance handout of between $4,500 and $10,000 is recommended.

Removing an older worker becomes an expensive and cumbersome process if the retirement age were to be scrapped. It is a fear that few employers are willing to go on the record to express, but remains the overwhelming source of resistance every time the issue is thrust into the spotlight.

Employers insist that the fallout will be to the long-term detriment of workers. Mr Melchers cites the experience of Germany, where the statutory retirement age is 67, and strong safeguards protect workers in their 60s from being dismissed on the grounds of age.
'Over-protection and privileges work against older workers' chances of being employed,' he cautions.

Other observers draw a parallel with generous maternity benefits. Although they are designed to favour workers, the reality is that some companies become more hesitant in hiring child-bearing women.

These anxieties and doubts perhaps explain why the Government, which has always taken great pains to maintain a business-friendly environment in Singapore, is throwing its weight behind the gentler middle ground of 're-employment'.

When the law comes into effect in 2012, companies will be compelled to re-employ workers who have reached retirement age for three years until they are 65, whether in the same job with the same pay, the same job with different pay, or a different job with different pay.

The plan is for the re-employment period to be extended to age 67 eventually.

Key to the scheme is that the legal retirement age of 62 remains in place, thus maintaining employers' fiercely guarded prerogative to decide where, how and at what pay to redeploy a worker.

Employers say this keeps older workers 'competitive' against younger ones.
Re-employment contracts are usually for one to three years, with employers retaining the flexibility to dismiss the employee. Health benefits are often slashed in re-employment contracts, thus preventing the headache of ballooning health costs as a company's workforce ages.

As Singapore National Employers Federation executive director Koh Juan Kiat points out, someone aged 60 to 64 is almost twice as likely to be hospitalised as someone aged 30 to 34 years old.

Unions in favour

FROM the point of view of unions and workers, scrapping the retirement age is a plan they can get behind.

'If there is no retirement age, it does not mean that an employer has to make do with unproductive people. They are two different things,' says labour MP Heng Chee How. 'Even at 25 years old, you wouldn't be kept around if you're unproductive.'

Instead, he says, pushing back or scrapping the retirement age can ensure that those still productive are not sidelined just because of age. It allows employment and remuneration decisions to be made solely on the basis of the worker's value-add - whether the person is 25 years old or 65 years old.

[I think he misses the point. An unproductive 25 yr old can be sacked because he does not have a history with the company. A 55-yr-old who has contribnuted much in his younger days, given the best years of his life, has earned some degree of consideration should his productivity fall. For the other workers, how the company treats the old workhorse can raise or lower morale. In such cases, it would be less embarassing to let the staff retire.]

It also allows workers to stay on the same lucrative terms of employment they enjoyed through their careers, rather than be downgraded to a re-employment contract come age 62.
But for employers to move closer to the unions on the issue, workers have to accept the dismantling of seniority-based wage structures.

[This is contradictory. To remain on the lucrative terms of employment with no retirement (compared to a re-negotiated downgraded re-employment contract), workers have to accept the dismantling of the seniority-based wage structure that would NO LONGER provide lucrative terms of employment at what was once retirement age.]

This is so that employers do not display an unspoken bias for younger workers simply because they will do the same job for less money.

It is the same rationale behind the Government's slashing of CPF contribution rates of those above the age of 50, in the hope of skewing down what older workers cost.

The numbers show that efforts are paying off: The maximum-minimum salary ratio, which is the range that is paid to workers doing the same job, has decreased from about three in the 1980s to 1.56 for the rank-and-file and 1.8 for junior management now.

This means that while years of service could once propel a worker to three times the pay of a younger colleague, now he is likely to get only 1.5 times more.

When it comes to the political hot potato of the retirement age, the experience of other countries is instructive.

In the United States, which actually has legislation prohibiting discrimination on the grounds of age, the employment rate of those aged 65 and above is 16 per cent: the same as in Singapore.
If the US rate is not any higher, it may be due to a workforce that has a higher percentage of workers on contract work, which introduces insecurity for workers but allows a great deal of flexibility for employers.

In Japan, which has the oldest workforce in the world, the legal retirement age is 60, but studies show that the effective retirement age, which is the average age workers work until, is 71.
Little wonder that Japan is the model older brother to a Singapore now struggling to age with grace.

It has managed to avoid the hard, bitter fight of raising the statutory retirement age, while still seeing its older workers continue in the workforce for a full 11 years longer than legally stipulated.

The Japanese pioneered the practice of re-employment in 2004, by passing legislation requiring employers to provide for re-employment up till the age of 65 in one of three ways: raising the retirement age in their companies, introducing a structure for continued employment, or abolishing the retirement age. At the same time, the age at which pensions start to be paid out will be gradually pushed from 60 to 66.

But by and large, Japanese workers go on well into their 70s beyond the remit of the legislation - for reasons to do with the sheer number of elderly (about one in three Japanese is over the age of 60) and the prevalence of the concept of working beyond retirement.

[And this is basically what LKY is trying to do - incept the idea of working beyond retirement in our minds.]

Even if the Singapore authorities do not make any move on the retirement age, that may be the direction the workforce is headed in any way. The generation of workers now entering their 60s and 70s is better-educated, better-trained and healthier than its forebears.

The retirement age debate can get swept up in legal terms and bottom lines. It is easy to forget that at the heart of it is the evolving human experience of what it means to live a productive, driven life.

Being 62 years of age once meant entering the twilight of one's life. Now it merely means adjusting to a second wind.

Mr Heng puts it this way: 'Fifteen years ago, workers didn't like the thought of pushing the retirement age back. Why are those same people now asking for the change? Because 15 years ago, they were 15 years younger. And now that they actually approach retirement age, they realise, 'hey, I didn't think then that I would want to go on. But I do.' '

[Excuse me, who are these workers who don't want to retire? I think it best to have options.]

rchang@sph.com.sg

Sep 4, 2010

Moving up the retirement age

1955: The Central Provident Fund (CPF) withdrawal age became the national retirement age when it was set at 55 by the British colonial authorities.

1987: CPF Minimum Sum introduced - CPF account holders allowed to withdraw all their savings above the Minimum Sum at 55, and begin drawing down on the Minimum Sum when they reached 60.

Most unionised companies cleaved to pressure from unions to raise the generally accepted retirement age to 60, to match the changes in the CPF structure. But non-unionised companies did not follow suit.

1993: Legislation passed to fix 60 as the statutory retirement age.

1995: Tripartite Committee on the Extension of The Retirement Age set up to study how the statutory retirement age could be raised progressively to 67.

1999: Retirement age raised to 62. Legislation also passed to cut employers' CPF contribution rates for workers aged between 60 and 65 years from 7.5 per cent to 4 per cent. For those above 65, the CPF rate was cut from 5 per cent to 4 per cent. Employers allowed to slash salaries of those over 60 by 10 per cent.

2007: Prime Minister Lee Hsien Loong announced that re-employment legislation would be introduced in 2012.

This would compel employers to re-employ workers who have reached retirement age for three years until they are 65. The re-employment period would be progressively extended to age 67. But the statutory retirement age would remain at 62.

2010: At an employers' event, Minister Mentor Lee Kuan Yew created a stir when he said: 'I don't think there should be a retirement age. You work as long as you can work and you'll be healthier and happier for it.'

RACHEL CHANG