KUCHING: Economists generally agree the retirement age may eventually be extended to 65 but cautioned it will have to be carefully considered.
Advocating for an extension of the retirement age is not a new concept. For civil servants, the retirement age was raised from 55 to 56 in 2001, then to 58 in 2008, and finally to 60 in 2012, sparking considerable debate even then.
“Two years ago, as 7 per cent of the Malaysian population reached 65 and above, many pushed for a similar increase and the introduction of a Senior Citizen Act to prepare for our aging society,” said Monash University Malaysia economist Niaz Asadullah.
“The post-pandemic recovery efforts have amplified calls for a flexible labour market that promotes labour force participation among the elderly. In light of these factors, an increase in the retirement age is inevitable.”
He is more inclined to a gradual adjustment by 2030, rather than a sudden increase from 60 to 65 years. This would be similar to what Singapore did, raising the retirement age from 60 to 62 in 1999, and avoiding any drastic changes over the next 20 years.
Universiti Malaysia Sarawak (UNIMAS) economist Jerome Kueh argued that increasing the retirement age would ensure the availability of a sufficient workforce, thereby fostering economic growth.
He cited the World Bank’s projection that increasing the retirement age to 65 could lead to a 0.3 percentage point increase in Malaysia’s economic growth.
Kueh also maintained that extending the retirement age would help address the scarcity of skilled workers in the job market, allowing companies to retain experienced staff and promote a diverse workforce.
“Having a mix of older and younger workers creates a diverse workforce where experienced and younger workers can work together to produce excellent results,” he said.
Economist and Unimas Visiting Professor Rajah Rasiah, meanwhile highlighted a major constraint in a civil service retirement age extension – that the government cannot afford it.
“The Treasury does not have the funds to cover public sector salaries until age 65. It must also address the needs of future generations, especially at a time when unemployment and underemployment rates are threatening to skyrocket,” he explained.
Instead of extending the retirement age, the government has provided financial assistance, offering RM2,500 + RM600 to the hardcore poor and a smaller amount for those above the poverty line.
“Indeed, the government increased the poverty line income in Budget 2023. This approach is evidently more effective than permitting the public to deplete their Employees Provident Fund (EPF) accounts further, as these savings are intended to sustain them in their retirement years. Given this context, I do not believe the government is prepared to elevate the retirement age to 65,” said Rajah.
On his part Centre for Market Education (CME) economist Carmelo Ferlito said the sustainability of the EPF should be assessed in light of an aging population and workers’ limited retirement savings, arguing that raising the EPF withdrawal age from 55 to 65 years should therefore not be dismissed outright.
Drawing on EPF data from 2020 and 2022, he demonstrated that prolonging the working years could result in higher retirement savings and potentially reduce the reliance on social welfare programmes such as old age pensions.
Ferlito also stressed the importance of enhancing social mobility, as it would enable individuals to increase their savings by earning better wages and more opportunities.
On the other hand, Kueh expressed concerns about raising the retirement age, such as potential employer preference for younger workers and the impact on Malaysia’s youth unemployment rate.
“Currently, Malaysia is not in the right position to increase the statutory retirement age because the unemployment rate is at 3.7 per cent, while the unemployment rate for youth aged 15-24 was 11.8 per cent in 2022,” said Kueh.
He stressed the consequences of the previous increase, saying: “Raising the retirement age from 55 to 60 years has led to the loss of nearly one million job opportunities for new graduates and those entering the job market. In Malaysia, about 200,000 workers in the private sector retire each year.”
He also noted the potential difficulties for employers, particularly in physically demanding industries, where age could affect performance and productivity.
“In these jobs, age can be a factor that affects performance and productivity,” he added.
Ferlito concurred, mentioning that increasing the retirement age could raise employers’ medical costs and hinder younger generations from entering the workforce.
