Wednesday, November 21, 2007

Increasing retirement age to 62 : A thought on it

The move to increase the retirement age of government employees from 60 to 62 years, as reported in this newspaper yesterday, can be endorsed on many counts. The average Indian's life expectancy at birth has gone up to over 66 years for men and 71 years for women. The last decision to increase the retirement age of government employees, to 60 years, was taken in 1998, when life expectancy for the average Indian was 63 years. Another increase in the retirement age now, on grounds of improved life expectancy, is therefore quite logical. There is also a social reason for postponing the age of retirement: as youngsters study for more years, they are dependent on their parents for far longer than used to be the case. Many family budgets get strained today because the main breadwinner retires before the next generation is settled in life.
The global practice also argues in favour of an upward revision in the retirement age. Several developed and developing countries have raised the retirement age to between 62 and 65 years. While the reasons vary from country to country, one common theme is the experience factor, which needs no elaboration. There are financial advantages as well. An increase in the retirement age will reduce the impact of the annual pension pay-out liability for the government for at least the period by which the retirement age is raised. The benefit of the reduced impact will come as a big relief, as it did in 1998, because the government's decisions to increase the retirement age and implement a new pay package for employees will most likely be taken at the same time. In other words, if the retirement age is not increased and the Sixth Pay Commission's recommendations for a pay hike are implemented, the central exchequer will take a bigger hit. Politically, a decision to raise the retirement age may earn for the United Progressive Alliance (UPA) the goodwill of an estimated ten million employees in the central and state governments. The UPA's coalition partners are also likely to reap electoral dividends from this, as the country heads for general elections in 18 months.
While these are all valid arguments in support of an increase in the retirement age, the government needs to keep in mind the impact at the entry level, because if no one retires for two years, then new recruitment too is likely to take a hit. In other words, those already in harness benefit, while those hoping to start their working careers will face more frustration; so postponing retirement has costs as well. It could also make worse the career stagnation that is already a problem in many government departments and services —those on a time scale get their promotions but stay in the same job, thus taking away much of the value of a promotion. So while it is true that retaining those with experience can add value, problems get created down the line.
It could also be argued that making 62 the age of retirement is far from being the most urgent reform required in the government's personnel policies. There are far more urgent and important issues waiting for attention, like the introduction of variable pay based on performance, a system for weeding out the non-performers, improving the quality of new recruits, creating the right environment for lateral entry, and so on. Some of these have been tried out but scuttled in practice, others have not been addressed at all. Changing the retirement age, if done, should be introduced simultaneously with these other, more important changes.