Changing its stance from last year, the employers' federation now welcomes a proposed new law to extend retirement age of workers in the private sector from 55 to 60.
However, its executive director Shamsuddin Bardan urged the government to allow a five-year interim period before fully implementing the yet-to-be-tabled Private Sector Retirement Age Act, which is expected to raise retirement age from 55 to 60.
“Basically, we think that the employers and employees should be changing their thinking and lifestyles starting now, and look beyond the 55-year-old mark and start thinking 60 and beyond,” Shamsuddin told FMT.
The life expectancy of Malaysians – in contrast to 55 in the early 1950s – was now much higher at 73 for males and 76 for females, said Shamsuddin.
Most countries in the region have also adopted laws or practices that look at retiring workers at 60 and beyond.
“We must reflect and look at the developed countries and also those around us. In Indonesia, Vietnam, the Philippines, and Thailand, it is around 60. In Singapore it is 62. Japan, 65, UK 67. And in the US there is no mandatory retirement age at all,” he said.
A five-year period to transition from 55 to 60 would lessen the burden on employers, he said.
“We should be mindful of the fact that in the first few years, the transition period may not be easy. What we are pushing to the government to do is basically give us a window of five years. During that time, employees should still be allowed to retire at 55,” he said.
Safeguards in place
Shamsuddin said that the bill should be drafted with several safeguards put in place, for example, employees who are not keen should not be forced to work beyond 55.
“And if the employee is ill – medically not able to work anymore – then the law should not be forcing them to work beyond 55. An employee with bad disciplinary record also should not be allowed to work up to 60 . Those are things we need to debate and discuss,” he said.
Shamsuddin said that legislation for Social Security Organisation (Socso) and EPF (Employees Provident Fund) must also be amended to allow for contributions after the age of 55.
Asked if employers would be more burdened if asked to contribute an extra five years in EPF, Shamsuddin said that the policy is needed and employers cannot be selfish and must move forward.
“We are trying to move up to high-income economy and a higher standard of living.”
Shamsuddin said that on average, about 70% to 75% of EPF contributors only save up to less than RM50,000 by the end of their employment.
“That’s a concern. If you live up to 70, for example, can you actually sustain yourself? The answer is no. But if we continue to contribute for another five years, on average it will be RM20,000 to RM25,000 more. It’s not much, but it’s more,” he said.
Relooking EPF policies
Ideally, said Shamsuddin, an individual should have at the very least RM130,000 when he retires so to have enough to live up to 70.
To increase savings, Shamsuddin said perhaps EPF policies should also be re-looked, such as limiting withdrawals.
“We have to set our priorities right. If it is for old age savings, then don’t touch it,” he said.
Recently, Prime Minister Najib Tun Razak announced during Budget 2012 that compulsory retirement age for civil servants would be revised from 58 to 60. In 2008, the government increased the retirement age of civil servants from 55 to 58.
Human Resources Minister Dr S Subramaniam has said that the new legislation to increase private sector retirement age would be tabled in Parliament latest by March next year.
It is expected to bring Malaysia “up to speed” with other countries in the region which have already set the retirement age at 60.
Currently, there is no law on retirement age for the private sector, but by practice, workers generally retire at 55.
Last year, MEF spoke up against the proposal to have the private sector retirement age extended.
Shamsuddin said that MEF changed its stance after taking into account changes in life expectancy, the over-dependence on foreign workers and the importance of nation building.
“We are talking about RM22 billion per year being remitted to other countries. If we can retain that amount internally, it would spur the economy further,” he said.
Shamsuddin said that the new policy is expected to bring down Malaysia’s over-dependence on foreign workers.
“We have 5.8 million employees in formal private sector and 3 million in the informal sector. And with about 3 million foreign workers, we have about 30 percent of people in the private sector who are foreigners. That’s pretty large and pretty alarming,” he said.
Changes in insurance policies too
Increasing the retirement age would utilise more optimally local human resources, as about 100,000 more will be retained each year. This would subsequently reduce dependence on foreign workers.
Shamsuddin said that insurance companies also should be changing their policies to reflect the impending changes.
“This is where the insurance companies should also think about how they can contribute to nation- building.
“It won’t be fair when employers are keeping people at 60 but premiums are more expensive beyond 55,” said Shamsuddin.
He added that Bank Negara should look at having this reviewed so as to lessen the burden on the employer.
Despite the new law, Shamsuddin said that employees could still be allowed to work up till 70 and beyond and that would depend on the contract between the employer and employee.