Mixed signals on retirement
Determining the official retirement age for government workers should be seen more as a pension issue rather than a labor supply issue. In a country where national and local governments are among the biggest employers, and where a young population provides an abundant supply of workers, legislators should tread carefully in deciding on how best to adjust retirement policies for the bureaucracy.
To date, I am getting mixed signals from the House and the Senate, and I am uncertain whether decisions are being made on the basis of quality and irrefutable empirical data and metrics, or more on the basis of political interests. After all, in about eight months we are holding the May 2022 elections, and many of our lawmakers are seeking reelection.
At present, the optional retirement age for government workers is 60, and the compulsory retirement age is 65. Under consideration now are bills proposing to lower the optional retirement age of government employees to 56; and, for public school teachers to 55. However, there are also a pending bill raising the retirement age, particularly for the military and the police, which is 56. The Senate proposal is to raise the retirement age of officers to 60 and the Chief of Staff to 65. But the retirement age of enlisted personnel will remain at 56.
We have no set optional or mandatory retirement ages for presidents, vice-presidents, senators, congressmen, and Cabinet members, or appointed heads of agencies. But in the judiciary, the mandatory retirement age for judges is 70. Incidentally, at the US Supreme Court, and all other US federal courts, there is no mandatory retirement age for judges. However, of those who decide to retire voluntarily, available online data indicate an average age of 78.
Perhaps legislators should strive for consistency, and that retirement ages should not be a matter simply of age but physical and mental and intellectual ability. But more than this, there should be a major consideration of fiscal implications, particularly the ability of pensions systems and future generations to shoulder the cost of benefits of retirees. Moreover, why allow military officers to stay on longer than enlisted personnel? For all members of uniformed services, shouldn’t retirement age be the same?
Mandatory and optional retirement ages will ultimately depend on the type and volume of work required from an individual. In this line, recent studies and research should be reviewed to help set a baseline as well as a standard that can be applied to different types of government work. Benchmarking will help in this regard. The starting point perhaps should be the present standard of 60 for optional and 65 for mandatory, for all government workers. Nothing lower.
For the Philippine military and police services, the mandatory retirement age is currently 56, or 35 years of service. A Senate bill proposes to jack this up to 60, but for officers only, and to 65 for the Chief of Staff. I don’t see any compelling reason for this difference. In the US, the Army has raised the retirement age for active personnel to 62 from 55, and the age limit for enlistment to 39 from 34. Why not apply the 60-65 metric to all uniformed personnel as well?
I believe the state-run Government Service Insurance System (GSIS) should be heard on this issue. Personally, I see no reason to lower either the optional and mandatory retirement ages from the present 60/65. If at all, it should be raised instead or lowered. Provided, however, that after the age of 55, annual assessments are made whether one continues to retain the physical, mental, and intellectual capabilities deemed needed to do the job.
As the GSIS itself said in an explanatory note on its website, “any change in the [retirement] benefit package has a corresponding fund liability that would be hard to sustain, given the present poor investment environment and successive increments in government employees’ monthly salary.” Lowering the retirement age shortens the contribution period of GSIS members. The GSIS will also pay pensions much earlier than originally planned.
“GSIS is gravely concerned that the untimely receipt of benefit resulting from early retirement will continuously shorten the actuarial life. To address this, it may resort to two options — increase the contribution of those who are still in service or reduce benefits of the present and next generation of pensioners,” it said.
“The actuarial life of SIF [Social Insurance Fund] is 26 years. This means that it will last until 2045 from 2019. Based on GSIS’s studies, if any of the bills [to lower retirement age] would be implemented, the actuarial life will drop from four to 14 years. Thus, instead of until 2045, the fund life would will be 2041 only, or much worse, until 2031,” it added.
On whether the GSIS can still pay pensions of retirees if the retirement age is lowered, the pension system replied, “We are unsure of the future. GSIS might be too conservative with its projections. Only time will tell.” But it concedes that the GSIS will have a “weakened capacity to pay its SIF liabilities” unless premium contributions are raised significantly and benefits are adjusted.
The GSIS added that legislators should consider the aging population resulting from longer life expectancy and lower fertility rates. It said that life expectancy was expected to rise to 72.7 years in years 2045-2050 (from 67.5 years in 2005-2010), while the number of people aged 60 and above would increase in the year 2030.
It noted that in Australia, the retirement age was even slightly raised to 67 in 2017 and may be implemented until 2023. In Malaysia, the retirement age was raised to 60 in 2012 from 55, with plans to further increase it to 65. Thailand also did the same — to age 60 from 55. Vietnam is also considering increasing the retirement age of males to 62 from 60, and that of females to 60 from 55, the GSIS said. South Korea is studying raising its retirement age to 65 from 60.
In Belgium, the retirement age is also to be increased gradually to 67 by 2030. In France, the minimal retirement age has gradually increased from 60 to 62, and the full retirement age is to be increased gradually to 67 by 2023. In Germany, the retirement age is to be increased gradually to 67 by 2029. In Denmark, the retirement age will be increased gradually to 67 by 2022. And from 2030 onwards, it will be increased a maximum of one year every five years, depending on increases in average lifespan. In Ireland, Taiwan, and Japan, the retirement age is to be increased gradually to 68 years.
European civil servants retire at the age of 66 since 2014. And in the United States, retirees are eligible to receive reduced Social Security payments by 62, while people 65 and over are eligible to receive some free Medicare benefits if they paid Medicare taxes for at least 10 years. The full retirement age is to be increased gradually by 2023 and will be 67 for everyone born in 1960 or later. While everybody is considering going up, why are we looking at going down?
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council