From next year, carrots will be dangled to coax firms into hiring older workers until 67, instead of forcing them to do so by law. Why did the Government pick the carrot rather than stick approach? How effective are incentives, what works for firms and how long should they run? Insight talks to companies, economists and unionists.
By Toh Yong Chuan And Amelia Tan, The Straits Times, 8 Nov 2014
By Toh Yong Chuan And Amelia Tan, The Straits Times, 8 Nov 2014
Yet there is one long-term goal that, uncharacteristically, is yet to be ticked off despite the Government setting it 21 years ago - that of enabling employees to work until the age of 67.
Back in 1993, such a goal was motivated by an ageing population and rising life expectancies.
"It would be a waste of valuable human resource if Singapore workers retire at age 55, when they are still healthy and full of vigour," said then labour minister Lee Boon Yang.
Naturally, it met with some resistance from employers who were worried about the higher costs of hiring older workers. To address their worries, the Government cut the employers' portion of the contribution to older workers' Central Provident Fund accounts by 5 percentage points. The long-term target was to raise the retirement age to 67 by 2003.
But it was not until 2012 that a new law allowed senior workers the chance to be re-employed to the age of 65, not quite the original target set.
And the terminology has changed, too. The official "retirement" age is 62. But, by law, bosses must offer healthy workers who have performed satisfactorily what is termed "re-employment" from 62 to 65, or give them a one-off payment if no job is available. That magic age of 67 as the perceived extended ceiling of one's working life is in the forefront today.
Over the past year, closed-door talks were held among the parties involved - the Government, the employers and those representing the employees - to raise the re-employment limit from 65 to 67.
The option of using the law loomed in the background. After all, present laws already allow the Manpower Minister to prescribe the re-employment age as up to 67, in a single stroke of his pen.
But rather than take that course, the Ministry of Manpower (MOM) last month announced that it was going to provide incentives to employers to encourage them to voluntarily raise the re-employment age. It said the incentives will be announced next year and backdated to Jan 1.
The Singapore National Employers Federation (SNEF) was relieved. It tells Insight: "Introducing the law at short notice would disrupt the manpower plans of companies. Companies need time to make changes to prepare and comply with the requirements of any new law."
The Singapore National Employers Federation (SNEF) was relieved. It tells Insight: "Introducing the law at short notice would disrupt the manpower plans of companies. Companies need time to make changes to prepare and comply with the requirements of any new law."
MOM did not say what those incentives would be. When contacted this week, MOM and the Ministry of Finance declined to share any detail with Insight.
While the move will give employers time to adjust and not be forced into having to deal with the complexities of being forced to keep on older workers, it remains unclear how much time it actually bought them.
Advantages of not using the law
THERE are some who question whether incentives, or even the move to eventually legislate, are necessary in the first place.
"If the objective is higher participation for older workers, there is a lot of evidence that it is already occurring," says Nominated MP and UniSIM professor Randolph Tan.
The resident employment rate of those aged between 65 and 69 has been rising steadily, from 35.2 per cent in 2011 to 38.5 per cent last year.
As for the legislative weapon up the Government's sleeve, assistant economics professor Walter Theseira of Nanyang Technological University says it should avoid excessive regulation of the labour market. "There is considerable economic theory that argues that regulations on hiring and firing, for example, tend to discourage employment and business activity," he said.
Employers, unsurprisingly, agree that incentives are better than legislation, though they do add that it depends on what incentives are introduced. They have been calling for wage subsidies and help with covering the medical costs of older workers.
Employers, unsurprisingly, agree that incentives are better than legislation, though they do add that it depends on what incentives are introduced. They have been calling for wage subsidies and help with covering the medical costs of older workers.
"It is undeniable that costs go up when firms hire older workers. Some workers may be less productive. Medical costs are also a big issue as older workers tend to suffer from chronic illnesses," says Mr Kurt Wee, president of the Association of Small and Medium Enterprises (ASME).
On the other hand, it should be noted that employers' concerns about medical costs will be addressed to some extent when MediShield Life takes effect next year whereby those with chronic illnesses and a larger portion of hospitalisation charges will be covered.
Besides addressing medical costs, Mr Wee urges that the Government also help firms directly with wage costs. "Direct wage subsidies have the most direct impact."
The SNEF has similar ideas. The bosses' federation suggests extending the Special Employment Credit scheme introduced in 2011, which subsidises 8 per cent of the wages of Singaporeans aged above 50 who earn up to $3,000 monthly. The scheme will last until 2016.
Mr Wee even makes a case for permanent incentives. "Our workforce is going to continue to age, this is something that is not going to stop. So why should the incentives be available for only a few years?"
But labour economist Hoon Hian Teck disagrees. He argues that "temporary financial incentives" such as wage subsidies should be offered to firms hiring the current cohort of older workers, but not future ones. This is because old pay scales were based on a shorter worklife span and firms may be worried about rehiring workers for fear that their productivity may not meet pay expectations.
Professor Hoon adds: "(For) the current cohort of young workers, employers can work out their remuneration packages taking into account their longer life expectancy, and hence profitably employ them beyond age 65.
"No financial incentives are needed for this group of workers when they turn 65 in future."
And National Trades Union Congress (NTUC) deputy secretary-general Heng Chee How warns that firms should not treat the incentives as "free money".
"Depending on grants is not the way to stay competitive," he says.
Slowly, slowly, but not too slowly
MP ZAINUDIN Nordin, who chairs the Government Parliamentary Committee for Manpower, feels that while the incentives should be given time to work, legislation should not be ruled out if the "carrots" do not work. "If the incentives work, we can let them run," he says. "But if they do not work after one, maybe two, years, we must be open to using the law. We cannot wait indefinitely."
On its part, the Government hints that legislation is inevitable and the move to dangle carrots - rather than use a legislative stick - is to merely help firms adjust.
"We are allowing companies adequate time to adjust before legislating, and will provide incentives for employers who voluntarily re-employ older workers beyond 65 ahead of it being legislated," said Manpower Minister Tan Chuan-Jin last month, when the plan to introduce an incentive package was announced.
Firms are realistic, too.
Mr Wee says: "I don't expect legislation to be introduced in the next two or three years. In the meantime, we need to monitor the impact on firms on hiring workers above 65 closely."
The SNEF adds that how employers respond to the carrots will determine whether the law will be deployed sooner or later.
Until the law is amended, workers remain at the mercy of employers, especially those who suffer pay cuts when they turn 62, even when they are rehired.
One such worker is former Singapore Airlines Engineering planner Krishna Kumar, who claims that his monthly pay was cut by about $1,000 to about $2,000 when he turned 62 in 2011 (see side story).
"I felt I didn't have a choice but to accept the pay cut. I didn't want to change employers at my age," says Mr Krishna, 65, who eventually left the company in January after his yearly contract was not renewed.
Workers like him can only hope that the Government will take a firmer stand against employers soon.
And the Government has, in at least one instance in the past, resorted to legislation when promotional efforts failed. That was in 1993, when the retirement age was raised from 55 to 60 by law.
Five years earlier, in 1988, the Government set a three-year target to allow firms to voluntarily raise the retirement age to 60. By 1992, more than 70 per cent of unionised firms had done so, but the response of non-unionised firms was a dismal 5 per cent.
In 1993, the Government decided to amend the law, forcing all firms to comply. Said Dr Lee, the former labour minister, in Parliament then: "The Government, therefore, has little choice but to introduce legislation to raise the retirement age. We cannot wait or delay any further while the population ages and our economic competitors overtake us."
That was 21 years ago. It was also the time that the Government announced the target of letting employees - those who want to, at any rate - work until age 67.
More than two decades later, the wheels have finally been set in motion to make it a reality. While the waiting game continues, at least the end is finally in sight.
FIVE NUMBERS TO KNOW
55
Central Provident Fund (CPF) withdrawal age of 55
55
Central Provident Fund (CPF) withdrawal age of 55
Workers who reach 55 can withdraw a portion of their CPF savings after setting aside a Minimum Sum for their retirement and for medical needs.
Those who cannot meet the Minimum Sum - currently $155,000 but increasing to $161,000 from July 1 next year - can still withdraw at least $5,000.
CPF members will soon have the option of withdrawing part of their CPF savings in a lump sum after they retire.
The details have not been announced, but the Government has made it clear that these partial withdrawals will be capped.
60
Pay cut at age 60
60
Pay cut at age 60
The law allows employers to cut the pay of workers at age 60, even if the workers are doing the same jobs.
The pay cut cannot exceed 10 per cent.
This was the compromise reached among employers, unions and the Government when the retirement age was raised from 60 to 62 in 1999.
62
Retire at age 62
62
Retire at age 62
Firms cannot fire workers below the statutory retirement age of 62 on the grounds that they are too old. Singapore does not have a compulsory retirement age.
Workers can choose to continue to work after 62, if they want to.
The minimum retirement age is now 62 but the law allows the Manpower Minister to raise it to 67.
63
63
Receiving CPF payments from 63
From age 63 - the CPF drawdown age - workers can start receiving monthly payouts from the Minimum Sum that they set aside at age 55.
The payouts could be in the form of annuity payments or balances that are kept with the CPF Board or banks.
The drawdown age will increase to 64 next year and 65 in 2018.
65
Re-employed until 65
65
Re-employed until 65
Re-employment is a new concept introduced when the Retirement and Re-employment Act replaced the Retirement Act in January 2012.
While workers can choose to retire at age 62, firms are required to re-hire older workers who are healthy and whose work performance is satisfactory until age 65, or offer them a "golden handshake" payment if there are no suitable jobs.
Although the law allows the Manpower Minister to set the re-employment age at up to 67, the Government decided to set it at 65 for now.
No timeline has been set on raising it beyond 65, but firms that hire older workers beyond 65 from next year will get incentives.
At 65, he parted ways with employer after 42 years
By Amelia Tan, The Straits Times, 8 Nov 2014
By Amelia Tan, The Straits Times, 8 Nov 2014
LIKE technician Sinin Wasid (see other story), when Mr Krishna Kumar hit the official retirement age of 62, he was re-employed - with a pay cut.
But while Mr Sinin's firm said it was industry practice to cut the pay of older workers, Mr Krishna says that his employer, Singapore Airlines (SIA) Engineering, had another reason for slashing his pay by about $1,000, to over $2,000 a month.
According to Mr Krishna, who was an aircraft maintenance planner, the company said he would no longer be required to undertake supervisory responsibilities and his pay was reduced to reflect the change in job scope.
However, Mr Krishna claims his workload was not reduced. "I was doing the same job but my pay was cut significantly."
He stayed on despite this but, in January this year, his 42-year career with SIA Engineering ended. Mr Krishna turned 65 and his yearly contract was not renewed.
He is now working as a part-time clerk at a government agency and takes home about $1,500 a month.
Mr Sinin and Mr Krishna's experiences show how little bargaining power older workers have in getting better re-employment terms, as well as the cost pressures that firms face when hiring them.
For Mr Krishna, although disgruntled, he did stay on, as rejecting the terms would mean leaving the company and finding a new job. "Adjusting to a new company would be too difficult at my age. So I decided to stay," says Mr Krishna, who has two children in their 30s who are professionals.
To cut down on expenses, he and his wife, who does not work, ate out less frequently. He did not replace his car after scrapping it.
As for SIA Engineering, its spokesman tells Insight that Mr Krishna's pay was cut because he had fewer responsibilities - but notes that his pay was also increased twice after he was re-employed. "He was paid 5 per cent lower than his salary when he turned 62," the spokesman adds.
From last year, SIA Engineering stopped cutting the pay of re-employed workers. It employs 159 workers above 62, out of a staff strength of 4,919.
Mr Krishna says his younger colleagues are fortunate, and insists: "It is good that other workers do not have to suffer pay cuts like I did."
Staying on pays off for technician, now 68
By Amelia Tan, The Straits Times, 8 Nov 2014
By Amelia Tan, The Straits Times, 8 Nov 2014
His company, precision engineering firm Makino Asia, explained that it was keeping with the industry practice of reducing the pay of older workers.
Despite the pay cut, Mr Sinin, now 68, decided to stay on.
"I thought if I were to leave, would other companies want to hire an old man like me?" says Mr Sinin, who started working for Makino Asia about 40 years ago and has primary-school education.
His wife is a housewife and they have three children in their 30s who are factory workers.
But things turned out for the better.
Over the years, Makino Asia has increased the salary of older workers like Mr Sinin to reward them for their contributions.
With overtime, Mr Sinin now earns over $2,000, which is slightly more than what he was drawing before he turned 62.
In 2012, the company stopped cutting the salary of workers after they were re-employed, unless their job scope changed.
About 5 per cent of its nearly 500 workers are above 60 years old.
Mr Sinin is thankful that the company has continued to hire him after he turned 65. When workers turn 65, employers are no longer legally bound to keep them on their payrolls.
He has been told by his supervisor that the company will renew his yearly contract as long as he is healthy. He keeps fit by lifting weights and riding a stationary bicycle at home every day.
Dr Moh Chong Tau, Makino Asia's chief executive, says older workers are assets. "Their experience and mentorship to younger workers outweigh the cost of hiring them," he says.
Grandma retire? Not when she's a valued employee
By Amelia Tan, The Straits Times, 8 Nov 2014
By Amelia Tan, The Straits Times, 8 Nov 2014
For the past seven years, she has been working at different stores run by IT retailer Challenger.
Since earlier this year, she has been stationed at the outlet in the Plaza Singapura mall in Orchard Road.
"I like working. My boss treats me well and my colleagues are caring. Importantly, I am financially independent," said the grandmother of two.
She has three children and her husband is a taxi driver.
Madam Teh earns about $1,900 a month.
Challenger did not cut her pay after re-employing her when she turned 62 earlier this year.
She also gets the same medical and leave benefits as the other staff.
The company subsidises up to 70 per cent of its staff's outpatient medical bills. Junior-level employees like Madam Teh get seven days of annual leave.
Challenger's senior human resource manager, Mr William Ng, said the company does not cut the pay of older workers, as they are valued.
"The medical bills of older workers cost more than those of younger workers. But we find that their attitude is good and they are more willing to learn than younger workers," he said.
Eight of the company's 500 staff are above 62 years old.
The company also does not have a retirement age: Workers who perform well can work for as long as they want. That is good news for Madam Teh.
She said in Mandarin: "I want to work for as long as I can. I can't imagine staying at home. By working, I have money to go on holidays with my husband."
Raising the age ceiling
July 1, 1993
Retirement age raised from 55 to 60.
Jan 1, 1999
Retirement age raised from 60 to 62.
August 2007
The Government announces that there will be a new law by 2012 on the re-employment of those past the retirement age of 62.
Jan 11, 2011
Parliament passes the Retirement and Re-employment Act which introduces re-hiring of older workers beyond age 62, but the law does not kick in immediately.
July 2011
The public service, Singapore's largest employer with 124,000 officers, starts re-hiring staff who reach the retirement age of 62.
Jan 1, 2012
New law kicks in. For a start, firms are required to re-hire older workers who are healthy and have performed satisfactorily, until age 65.
May 1, 2014
Prime Minister Lee Hsien Loong says the re-employment age will eventually be extended beyond age 65.
Sept 29, 2014
The Manpower Ministry announces that from January 2015, incentives will be offered to firms that voluntarily re-hire workers past 65.
Oct 2, 2014
The public service announces that it will offer eligible public servants re-employment after they turn 65, up to the age of 67.
The public service announces that it will offer eligible public servants re-employment after they turn 65, up to the age of 67.
Three lessons from the past
By Toh Yong Chuan, The Straits Times, 8 Nov 2014
By Toh Yong Chuan, The Straits Times, 8 Nov 2014
TO COAX firms into re-hiring older workers beyond 65 from next year, the Government has come up with a tried-and-tested plan.
It has drawn extensively from its experience extending the retirement age from 60 to 62 in 1999, and in 2012, when a new law made it mandatory for firms to offer re-employment to staff who have reached 62.
There are three similarities.
1 Ample notice
First, the Government gave ample notice.
When it raised the retirement age from 55 to 60 in 1993, it made it plain that the retirement age would be raised to 67 in seven to 10 years.
The retirement age saw the next jump - from 60 to 62 - six years later, in 1999.
The notice period for the next jump, from age 62 to 65, was more than five years.
Both former Cabinet Minister Lim Boon Heng, who was the labour chief, and Prime Minister Lee Hsien Loong announced as far back as in 2007 that the law would be changed by 2012 to require firms to re-hire workers until 65.
In the same vein, Mr Lee said at the May Day Rally this year that the re-employment age will eventually be raised beyond 65.
2 Taking the lead
Second, the Government took the lead as Singapore's largest employer.
In July 2011, six months before the re-employment of workers to age 65 kicked in in January 2012, the public service started re-hiring staff who reached the retirement age of 62, until 65.
It set the example as Singapore's largest employer with 124,000 officers.
The public sector is doing the same next year. It announced last month that it will offer eligible public servants re-employment after they turn 65, up to the age of 67.
3 Working with unions
Third, unions worked tirelessly to coax unionised firms to re-hire older workers, even before the law came into effect.
In August 2010, more than a year before the re-employment law took effect, unions were reporting that nearly 960 out of 1,000 unionised firms had committed to offering re-employment of workers up to the age of 65.
Last month, the National Trades Union Congress (NTUC) pledged that it will get 500 unionised firms to voluntarily re-hire workers past the age of 65 by the end of next year.
NTUC deputy secretary-general Heng Chee How said that unions are confident of hitting the target.
Related
Rehiring past 65: Incentives for firms which voluntarily re-employ older workers up to 67
Public service takes lead in raising rehiring age to 67
Heng Chee How: Why turn someone into a dependant prematurely?
IPS study on ageing: Most seniors optimistic about their future
Raise rehiring age by Budget 2016: Halimah
Rehiring past 65: Incentives for firms which voluntarily re-employ older workers up to 67
Public service takes lead in raising rehiring age to 67
Heng Chee How: Why turn someone into a dependant prematurely?
IPS study on ageing: Most seniors optimistic about their future
Raise rehiring age by Budget 2016: Halimah
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