Thursday, December 13, 2012

Is Later Retirement Good or Bad?

Come 1 July 2013 when the Minimum Retirement Age Act 2012 is enforced, all private sectors employers must extend the retirement age of their employees from 55 to 60. This news comes with mixed reactions and feelings. On the surface it would appear to be a good thing, that employees get additional working life to earn more income as well as keep themselves occupied. The flip side of the coin is that senior employees get less time to spend on themselves and their families, which many feel they deserve the right to do so. To many health problems start to surface around 50 and to 'force' them to work longer is tantamount to extending their suffering years. Although the Act allows for early retirement at 55 or the age as agreed in the contract of service, some will opt to continue if they need the money even though if the employer wish them to leave because of higher staff cost. This puts the employers at grave disadvantage especially if their businesses are not doing well or suffering from low profit margins.

Often extending the retirement age has to do with meet the rising cost of living and medical care. It is a known fact that one can never save as fast or faster than these cost escalation. Investment products like hybrid insurance scheme that build in return from investment and unit trusts are being dangled before would be retirees, and even to the younger employees with families to save for a rainy day (which appear to be wetter in the future). This is on top of the employee provident funds they have to contribute to provide a saving nest to fall upon later. Somehow the equation between income versus expenditure + investment doesn't match. It is a known fact too that expenditures rise much faster than income and the government has failed to slow down inflation and raise the productivity of the workforce to keep our products and service competitive globally. In a nutshell employees are being cornered and have to continue working longer and nearer to their graves to survive with less dependence on children and the state. The children may want their parents to work longer to reduce their financial support on their parents, and the state would want to reduce their healthcare burden by passing the responsibility to private healthcare schemes such as the stalled 1Care which had many citizens raise up in protest.

We can blame on the individual employee for not managing their finance well but there are many external factors beyond their control. It is human nature not to work long into their life. If possible many would want to retire at 45 and live reasonably well until they die on their own savings and investment. Of course this is just pipe dreams now to most of the employees in both private sector and public service. The government has mooted the idea that it wants to develop the nation to be a high income society. It is a concept with no road map to show the people how.

Later retirement can destroy small businesses now required to keep their long service workers at higher pay (and higher healthcare cost) than younger recruits. Older employees are less agile, slower, and maybe even harder to retrain, beside being more expensive to retain.

The government has recently gazetted the Minimum Wages Order 2012 which when effected in phases from next year will be a double blow to employers. At the time when there is a global recession that hurt the demand for locally produced goods, rising manpower cost without an increased in efficiency and productivity will surely make buyers look elsewhere for cheaper goods. The timing is bad but it appear that we have been caught unprepared and is now paying the price of becoming a high cost nation.

We have to learn to worker harder and smarter to catch up with less developed countries around us that are attracting more foreign investments because of their lower costs to the investors. For now it appear that only well managed companies and businesses can survive the coming years of adjustment and there will be many that will have to close their businesses. In retrenching their workers there will be more unemployment and higher dependence on those family members who still hold jobs. This will surely stress the families and society even more. On balance it seems we should not rush into extending retirement age until we have cure our productivity problem as well as change the mindset of young graduates who demand high pay with no commensurating experience.

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