Why does S'pore require companies to re-employ workers till they are 67?

MS Explains: In S'pore, an employee gets re-employed when they reach retirement age, and gets retired when they reach re-employment age. What's that all about?

Nigel Chua | March 27, 2021, 03:00 PM

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Singapore plans to progressively raise its retirement age to 65 by the year 2030, up from the current retirement age of 62.

This doesn't necessarily mean that we'll work longer before we can retire, however. The retirement age is a restriction for employers and not employees.

Under the Retirement and Re-employment Act (RRA), employers are restricted from asking employees to retire before they reach retirement age, provided that they joined their companies before reaching 55.

Meanwhile, workers can retire anytime they are ready, regardless of what the retirement age is.

Why do we have a retirement age?

The idea of a retirement age was introduced in 1993, to prevent employers from retiring workers once they reach the age of 55.

Back then, it was common for companies to ask workers to retire at 55 —  the age at which they were allowed to withdraw from their Central Provident Fund (CPF) accounts.

The significance of the number 55 stems from colonial times, according to economist Lim Chong Yah in a 1999 book, "Wages and Wages Policies: Tripartism in Singapore".

Lim explains that the unofficial retirement age when Singapore was a British colony had been unofficially fixed at 55, so that the British who worked in Singapore would not be too old to re-root back in their home country with their pensions.

While pensions are no longer available for workers these days, Lim explains that the CPF withdrawal age was also set at 55 when the idea of CPF was first introduced, defending it as having "a strong rational basis" in light of life expectancy at the time.

However, life expectancy in Singapore improved significantly over the years, and thus, the government took action to rule out the practice of companies asking workers to retire at 55.

After the Retirement Age Act came into force in 1993, companies had to wait till their workers reached 60, before asking them to leave.

The retirement age has since been raised to 62 in 1999, and is scheduled to be raised to 63 from July 1, 2022. By 2030, it is expected to be raised to 65.

Re-employment age enters the picture

On top of retirement age, there is a lesser-known, relatively-new employment law provision also contained in the RRA: Re-employment.

This part of the RRA makes it mandatory for employers to re-employ workers who reach retirement age, provided that they are "medically fit" and have "at least satisfactory work performance".

This has been a requirement since 2012.

The law stipulates that employers who are unable to offer such workers a job must help the workers to secure acceptable alternative employment in a different company.

Alternatively, employers can make a one-off Employment Assistance Payment (EAP), which is intended to help workers "tide over a period of time while [they] seek alternative employment."

Before the introduction of re-employment age, the retirement age was one of the most significant milestones (and possibly the end-point) in a worker's career, at which their employer might pay their last salary, give them a memento, and ask them to never come back to the office.

But with re-employment in the picture, the above could only happen legally when the employee reached re-employment age.

Thus, the introduction of a re-employment age arguably changes the meaning of a "retirement age" quite significantly, as those who reach retirement age must be re-employed, rather than being "retired" by their employers.

Almost paradoxically, under the RRA, an employee would get re-employed when they reach retirement age, and would get retired when they reach re-employment age.

The re-employment age used to be 65, before it was raised to 67 in 2017. It will be raised again to 68, on July 1, 2022.

The re-employment age is expected to reach 70 by 2030.

Why is there both a retirement and a re-employment age?

The twin concepts of retirement and re-employment may seem unnecessarily complex and perhaps even burdensome on employers.

One might ask, instead re-hiring older workers at 62 and letting them go at 67, why not just set a retirement age (where they actually do retire) at 67?

This would be a much simpler way to regulate the labour market, and would still allow older employees to continue working as they age, while of course still letting them retire early if they so choose.

However, while the retirement age helps older workers by allowing them to stay employed and continue earning their salaries, Paulin Straughan, Professor of Sociology (Practice) and Director of the Centre for Research On Successful Ageing (ROSA) at Singapore Management University (SMU) explained that re-employment helps younger workers.

Re-employment helps younger workers

Re-employment allows employers to re-tabulate their manpower needs, says Straughan, pointing out the fact that even long-term employees will need to renegotiate their employment agreements with their employers when it is time for them to be re-employed.

This gives employers an opportunity to make adjustments to these employees' remuneration, Straughan said, so that keeping older employees does not place an "unbearable burden on manpower cost" for employers.

"Of significance is the fact that many older employees — because of their tenure and experience — tend to command higher remuneration," Straughan said.

She also pointed out that this "structured approach" of retirement and re-employment also helps to ensure that older employees are not seen as liabilities to an organisation.

Ultimately, the opportunity to recalibrate helps to ensure that "there is room for younger entrants and opportunities for promotions for the next cohort," as those who are older (and typically more senior) eventually retire, Straughan said.

Why don't companies renegotiate contracts sooner than required by law?

When the retirement age was introduced in the 1990s, there was nothing to stop companies from renegotiating contracts to keep manpower costs manageable.

Before the legal requirement to re-employ was created in 2012, companies could well have offered their workers new contracts which would guarantee them a job past age 60 (the retirement age then) in exchange for less pay.

This would have been legal, as it was only dismissal on the grounds of age that was prohibited at the time.

However, to do so at the time would have been going against a prevailing backdrop of "rigid seniority-based wages", which, as then-Minister of State for Manpower Sam Tan acknowledged in Parliament on Apr. 8, 2016, were common in the past.

For example, it would have seemed absurd for an employer to expect that Aunty Helen a (fictional) 58-year-old customer service manager with 35 years of experience, would accept a pay cut and be paid the same salary as Johnson, another (fictional) 54-year-old manager with just 30 years' experience.

If Helen was asked to stay on past the age of 60, she might also have expectations of a further salary increase, in view of her 37 years of experience.

Thus, instead of renegotiating Helen's contract, it would have made more sense for their employer to wait till she could be retired at 60, and simply let her go.

After all, why would an employer keep an older worker when their role could be done by someone younger and cheaper to hire?

Thus, for a brief period in Singapore's history between Jan. 2012 and Jun. 2017, employers were expressly empowered to reduce their employees' salaries by up to 10 per cent under Section 5 of the RRA, at any time after the employees reached the age of 60.

Under that section, should employees disagree with the proposed salary reduction, they had two options: retire, or be retired by their employer, even if they had not reached the prevailing retirement age of 62.

Since they could legally reduce their older workers' salaries, employers had an additional reason to not replace their older workers with younger candidates who might be willing to do the same job for lower pay.

However, Tan said in 2016 that 98 per cent of companies had stopped the practice of reducing wages at age 60, with flexible and performance-based wage systems being advocated by the tripartite partners.

This meant that the "wage cut" provision was no longer relevant, and the entire Section 5 of the RRA was repealed on Jul. 1, 2017.

While the legal provision for cutting the wages of those who reached 60 has been retired, the policy on re-employment essentially allows for pretty much the same thing, albeit in a more sophisticated form.

If employers indeed replaced their seniority-based wage models with performance-based ones, why is there still a need for a re-employment age?

Perhaps employers have not been sufficiently progressive in abolishing seniority-based wage models to be able to do without the re-negotiation opportunity that is provided for by the RRA.

Limitations of re-employment

Transitioning from a full-time employment arrangement to a re-employment arrangement may not suit everyone.

There are those who are willing and able to continue to produce at least the same work output even after they reach the prevailing retirement age.

For example, a lecturer or professor may well be able to continue teaching the same number of classes and handling the same amount of responsibility — provided they stay fit and healthy.

Similarly, top executives may also continue to serve in their full managerial capacity well beyond retirement age — Eu Yan Sang International's chief executive Richard Eu served till age 70 till he was succeeded by Aaron Boey, while the late Thio Gim Hock and former CEO of real estate company OUE retired at age 82, in 2020.

In such cases, employers would be more than happy to keep these older workers around, paying them the same or even higher salaries.

But the majority of older workers today would likely find themselves in a rather different situation.

In 2019, some told CNA that what re-employment brought them was lower salary and fewer benefits, with no change in their workload.

While the employees interviewed did in fact choose to accept these re-employment terms over retirement, it is difficult to imagine that an employee who had not reached retirement age would agree to a similar arrangement.

To make things worse, the majority of older workers today would have entered the workforce in the 1960s and 1970s, at a time when industrialisation was a key driver of Singapore's economic growth.

While considerable resources have been allocated to help these workers upgrade themselves and keep up with the changes in Singapore's economy, many are unlikely to have the level of literacy required to negotiate with their employer on equal terms.

Under the RRA, employer can also make a unilateral determination that the older workers do not meet the re-employment eligibility criteria due to unsatisfactory work performance.

"What recourse does a senior worker have when the employer refused him or her the right of re-employment on grounds of unsatisfactory work performance, which the senior worker disagrees with?" asked Non-Constituency Member of Parliament (NCMP) Daniel Goh of the Workers' Party in 2017, in Parliament.

The opposition politician, decrying delays in the raising of re-employment age to 67, suggested that the retirement age should be further raised, and possibly linked to life expectancy.

He would go on to suggest in Jan. 2019 that retirement age should be abolished altogether, and that employees should be offered re-employment from age 70.

Why not abolish retirement age altogether?

Goh's call for the abolition of the retirement age was echoed by Straughan, who suggested that "doing away with retirement age may well be the answer to our labour shortage," pointing out the "difficulties we already see when we rely too heavily on foreign labour", and the fact that Singapore currently has an "ultra-low birth rate".

To Straughan, doing away with a retirement age is "the employment strategy we should strive towards, particularly for resource-scare Singapore."

Indeed, Deputy Prime Minister Tharman said in 2016 that the idea of a statutory Retirement Age would have to go "at some point", since older workers could continue to learn and adapt, The Straits Times (ST) reported.

That point has not yet come, apparently.

Manpower minister Josephine Teo cautioned against removing the statutory Retirement Age, which "prevents employers from prematurely dismissing an older worker because of age". Addressing criticism of the policy in a speech at the Economic Society of Singapore's annual dinner event in 2019, Teo said:

"The 'abolitionists' may not have realised that when the statutory Retirement Age is removed, so too the employer’s legal obligation. We will then regress back to the days before 1993."

Taken together, the two ministers' remarks suggest that the policy on retirement and re-employment — much like an older worker — performs an important function now, but will one day be retired.

Importance of retirement as a concept

While policy may change in future — toward extending the retirement age, and potentially removing it in due course — Straughan pointed to the importance of the concept of retirement itself, saying that retirement "signals the end of gainful employment" and is a milestone that "helps us to conscientiously prepare for our post-work life financially and socially."

She cautioned:

"One worry I have [...] is that we lose sight of the golden period of post-retirement where we live for ourselves, enjoy family and friends, and take joy in giving back to our communities.

We certainly do not want to promote the ideal that we live only to work, and that we work till we drop dead."

Mothership Explains is a series where we dig deep into the important, interesting, and confusing going-ons in our world and try to, well, explain them.

This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date on not just what is going on in the world, but also the "why's".

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