Setting an Ideal Retirement Age
By Sibin Sabu*
In the years to come, retirement
age will play an increasingly important role in the framing of public policies
of governments across the world.
Retirement age has direct
and indirect implications on the economic and social conditions in a society. Today,
we can find that it varies from a minimum of 45 years in Turkey to 70 years in
Australia.1
Determining the age for
retirement is a tricky job for any employer – whether it is the government or a
private firm. Several factors play a role in it.
Demography
Increasing the retirement
age allows a state to make use of the productivity of the elder citizens. In
fact, there is no point in forcing a healthy and experienced employee to retire
early.
The term old age
dependency ratio becomes relevant in this context. In simple terms, it
represents the ratio of percentage of old age population to the working age
population. This dependency ratio should be as low as possible and increasing
the retirement age is one way of increasing the number of people in the working
age population.
Countries with rising old
age population would be the biggest beneficiaries of a higher retirement age. In
India, states like Kerala are likely to gain most by raising the retirement age
since it has the highest percentage of old age population in the country and by
2050 one out of two in the state would be over 60.2
Fiscal Burden
In India, the fiscal cost
of ageing is currently at 2.2% of GDP and it is steadily increasing.3
The decline in joint
family system and increasing life expectancy would place a greater
responsibility on the government to provide for the old. This would have
repercussions on the fiscal conditions of a state or country.
Kerala, which has the
largest share of old age population in the country, spends around 35% of
revenue receipts on pension. The amount spent for health care and support of
the elderly would further inflate the figures. Thus, the fiscal cost of ageing
in Kerala could be several times more than the all India average.
Retirement age could be
adjusted to combat these costs and this will be an important tool in easing the
fiscal pressure on the state.
Post Retirement Life
It is important to
understand how the retired spent their time in retirement. The vocation taken
up by the retired are closely linked with social factors such as culture,
traditions, social security net and family system prevalent in a society.
For example, in places
where a joint family system is prevalent, the retired may prefer spending their
time with their family. In the absence of a joint family system, the retired
would try to keep themselves preoccupied and busy by taking up some profession
in their retirement.
Availability of such data
will provide government with insights on the needs of the retired and their
potential. However, there has been little research carried out on that front.
Such a study could be included as a part of Census or in National Sample Survey
Rounds.
The retirement age should
be set after taking into consideration these social factors as this will enable
employers and governments to leverage their potential and meet their needs to a
greater extent.
Health
The life expectancy of an
Indian was 32 years at the time our independence while the retirement age of
Central government employees was 55 years at the time.
Today, our life expectancy
has more than doubled while the retirement age has increased only by five years.
As a result, the average expected time in retirement for Indians is close to 25
year and it is going to increase further in the coming years.4
It must therefore be
ensured that workers who are fit are not forced out of the system. The
retirement age must be in tune with the expected life expectancy and quality of
life.
Nature of Profession
Some professions like
mining has a lower retirement age owing to risks involved if an older person
works in the mine. In contrast, MPs and MLAs do not have any retirement age. There
are also some professions like Sports and Arts which do not have a formal
retirement age.
Thus, different
professions must have different retirement age considering the impact aging has
on a particular profession.
Fears of Youth Unemployment
Often, governments are
unwilling to increase the retirement age because of fear of harming the
prospects of youth employment. Such a belief is based on what is popularly
referred to as the ‘lump of labour theory’. The belief is that if we allow the
older workers to continue, the employment prospects of the youth would be
affected.
Historically, this fear
has had a big influence in decisions pertaining to retirement age. Moves by the
Central Government and many State governments in India to increase retirement
age has faced stiff resistance from the opposition and didn’t fructify
following protests and fears of hampering the employment prospects of the
youth.
In other words, this is a
form of discrimination in which governments prefer having an elderly unemployed
than an unemployed youth.
In this context, it is
important to look at whether the notion of older employees driving out younger
employees is based on scientific evidence. Studies show that the belief is a
mistaken one and one to be dispelled.
Researchers worldwide have
failed to establish any direct correlation between a higher retirement age and
youth unemployment. In fact, some studies have reported a decrease in youth
unemployment with an increase in labour force participation of those above 55.5,6,7 Therefore, contrary
to popular fears increasing the retirement age may lead to a decrease in the youth
unemployment rate.
Supply of Labour Force
There have been instances
when governments have been compelled to increase the retirement age due to
shortage of labour force for a particular profession.
For example, the
retirement age of scientists is 2 years higher than the other employees in the
Central government. In West Bengal, the retirement age of Doctors was increased
owing to shortage of qualified doctors in the state.
Thus, retirement age also
reflects the labour supply for a particular profession. Retirement age may be
raised or lowered depending on the labour supply for a particular profession.
Performance
The biggest question would
be whether we need a retirement age at all. Ideally, the labour force should be
given the opportunity to work as long as they are fit and performing. If
retirement is linked to performance instead of age, this could lead to greater
efficiency and productivity.
The same can be said about
our Public Sector Undertakings. While the BSE Sensex returned 127% between 2009
and 2014, the BSE PSU Index gave a meager return of just 20% in the same period.8 One of the major
reason is the security that these jobs offer which has led to a lack of
emphasis on performance. Thus, a person getting into a government job will
usually continue until he retires irrespective of his performance.
Setting a formal
retirement age, therefore, has several unintended negative consequences. It can
be argued that the traditional notion of retirement must wither away. Retirement must be delinked from ‘age’ and linked to ‘performance’.
By,
Sibin Sabu, Research
Assistant, Centre for
Public Policy Research, Cochin
The Views of the author are personal and does not in anyway represent that of CPPR
References:
1. http://beforeitsnews.com/alternative/2013/07/top-10-countries-with-a-low-retirement-age-2712562.html
2.
Kerala Development Report by Planning Commission, Government of India
(2008)
3. Crisil: When India Ages, Whither Pension
for All? http://www.crisil.com/private-sector-pension-coverage/PPT/private-sector-pension-coverage.pdf
5. IZA WOL:
6. When Baby Boomers Delay Retirement, Do
Younger Workers Suffer? http://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/economic_mobility/EMPretirementdelaypdf.pdf
7. Releasing jobs for the young? Early
retirement and youth unemployment in the United Kingdom http://www.ifs.org.uk/publications/4746
Comments
Nebosh course in chennai
Nebosh courses in chennai
Nebosh Course Provider
Nebosh in Chennai
industrial safety course in chennai