Pros and cons of increasing the retirement age in Sri Lanka’s private sector
Posted on November 21st, 2020

By Gitanjali Marcelline Courtesy NewsIn.Asia

Undoubtedly, increasing the retirement age has its merits, but one also wonders if, under the present trying economic circumstances, the Sri Lankan private can manage to keep employees for five extra years.

Colombo, November 21( : When presenting the budget for 2021 a few days ago, the Sri Lankan government proposed to increase the retirement age in the private sector from 55 to 60 years.

Undoubtedly, increasing the retirement age has its merits, but one also wonders if, under the present trying circumstances, with the economy in the doldrums owing to the Covid-19 pandemic, the private sector can bear the extra cost of keeping ageing employees for five more years.

The cost of extended employment includes payment of salaries and making contributions to the Employees Provident Fund and the Employees Trust Fund for a further five years.

At present, no private sector employer is compelled to retain the services of an employee who has reached the age of 55. However, most companies give adequate notice of termination to the retiring employees. Some are retained on humanitarian grounds for an extra 6 months or a year to give them adequate time to find alternate employment. There are also some employers, especially in the apparel sector, who extend the services of technical staff/workers at retirement age and beyond because these are highly trained and skilled. Such employees are hard to replace. They also cannot be lost to competitors.

However, the context in which this system existed has changed radically with the pandemic-induced economic crisis in Sri Lanka and the world at large. Lanka’s principal economic sectors like apparels, tourism and tea, have been badly hit, with factory closures, zero tourists, and imports and exports dwindling to a mere trickle. Ports too are crippled, so much so that the government has had to call for the return of retirees to overcome the labor shortage.

While the scaling down of operations has resulted in retrenchment and lowering of wages, the government has also been under increasing pressure to stop the decline in employment and provide employment to the unemployed. Among the steps taken by the government to remedy the situation are increasing public expenditure on infrastructure projects and providing employment to 100,000 poorest of the poor. In addition to these steps, there is a provision in the 2021 budget for increasing the retirement age in the private sector from 55 to 60.

Though not explicitly stated, the government sees increasing the retirement age as a way of mitigating unemployment. The official reason is that the increase in the retirement age is due to the change in life expectancy which has been increasing in Sri Lanka.

Be that as it may, the argument based on the increase in life expectancy is equally valid given the changes in the retirement age taking place in the rest of the world citing an increase in life expectancy.

Let’s look at some of the retirement age figures from other countries. In the United States, the retirement age is 65 years and it is expected to be increased gradually to 67 by 2023 for those born in 1960 or later. In the UK, the pensionable age steadied at 65 in 2018, but plans are afoot to increase it to 66 by 2020; to 67 by 2028; and to 68 by 2037. Australia also shows an upward trend. It is now 67 years, but it will be upwardly revised again in 2023. Looking at our immediate neighbor, India, the retirement age is the same as in our public sector, but they plan to increase it to 65 by 2028. In Pakistan, last year, the government got approval to increase the retirement age from 60 to 63.

But like Sri Lanka, these countries have also run into a severe economic downturn due to the COVID-19 pandemic. Unemployment is rampant. One wonders if their plans to increase the retirement age would actually be implemented under the changed circumstances.

Taking the case of Sri Lanka, the Free Trade Zone Manufacturer’s Association (FTZMA) has reportedly urged the government to examine how the private sector can change its labor policies in the event of it’s extending the retirement age from 55 to 60 years with the pandemic unlikely to go away anytime soon.

It has to be recognized that the main sectors of the Sri Lankan economy are badly hit and unable to retain the services of even younger workers, leave alone older employees. Employers have been engaging in cost-cutting exercises like encouraging workers and other staff to opt for voluntary retirement whilst retaining the services of those who are deemed important to sustain the business.

World-wide, policy-makers generally look at factors like the nature of the job, the state of health, life expectancy, and productivity when deciding the retirement age. But some authorities (like FTZMA in Sri Lanka) question whether an increase in life expectancy is a good enough reason to increase the age of retirement. They cite non-efficiency/non-productiveness of the higher age-groups to discredit the idea. It is also pointed out that increasing the retiring age will block opportunities for younger age-groups when unemployment in the latter age group is worrying. And let’s not forget, youth unemployment can trigger social and political unrest to the detriment of the country.

In Sri Lanka, the retirement age of public sector employees is 60, whereas in the private sector, it is 55 (with the possibility of extending on contract-basis until 60). Indeed, 55 years is very low, considering that the employees’ retirement life could be longer than their working life, as average life expectancy in Sri Lanka now exceeds 75 years.

It is found that in the many companies listed in the Colombo Stock Exchange, almost 60% of those serving on the boards are between 60 and 70 years of age! Clearly, the private sector is not oblivious to the value of experience and wisdom which comes with age. Therefore, the private sector should be able to continue to give senior persons the key task of providing leadership. There is no reason why the knowledge and experience of employees above 55 should not be harnessed by extending the retirement age.

Look at our policymakers in Parliament! According to a post in the parliament website, in 2018, one out of every nine MPs would be more than 70 years of age by August 2020. This reflected the age profile of the general Sri Lankan population. In 2012, senior citizens accounted for 2.5 million out of a total Lankan population of 21 million (12.5%). This was expected to increase to 16.7% by 2021.

While some of the senior MPs, including cabinet ministers, dose off during debates, others seniors have proved to be as alert and active as the younger set. If one were to look around, there are people between 55 and 70, who are still productive and can be engaged. Some of those who are compelled to retire at 55, continue working informally rather than lead a sedentary life, become unhealthy and develop a bad temper. With a reduction or elimination of income, they may end up getting depressed, aging faster, and requiring special and increasingly expensive geriatric care.

In fact, employers can benefit from retaining senior people, who are generally more mature, patient and focused than the younger set. The quality of output may also be better. Seniors would also demand less than the younger employees do and show a lessor tendency to switch jobs for small gains. Seniors would work for less to keep their body and soul together. Studies in Japan have also shown how family-like” long-standing ties between managements and workers have contributed to the success of enterprises.

Existence of yuppies in a company may give the impression that it is into a new age and rearing to go, but yuppies also run up huge overheads in terms of high salaries, bonuses and allowances for entertainment and travel. They may also show less commitment to the company, looking, as they often do, for fresher pastures.

One Response to “Pros and cons of increasing the retirement age in Sri Lanka’s private sector”

  1. Nimal Says:

    It is very healthy to work as long as possible in years,say 65 to 70 years.I am nearly 80 still working doing 3 businesses and some in other countries, only have HBP.

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