Should the retirement age be raised?

DEBATE

It will obviously help alleviate the shortage of skilled manpower that industry faces, but the question is of whether this hurts firms in the long run.

M S Krishnamurthy,
Executive VP (HR),
L&T

Valuable experience can be used to mentor newcomers, and is vital at a time when industry is so short of skilled people

The appropriate age for retirement is being discussed in a number of countries, though for different reasons. In Europe, because of shrinking population, the pension burden on the exchequer has resulted in increasing the retirement age "" most countries have raised this to between 63 and 65 years, and in the US, the age for retirement is 66 years.

It is the opposite in India "" 64 per cent of the population is less than 30 years old, and over 13 per cent between 45 and 64. So, over the next couple of years, larger numbers will seek employment compared to those who retire. Also, life expectancy has increased from 50 in the 1970s to 62-65 today.

With globalisation, and the GDP growing at 9-10 per cent, job opportunities have multiplied as job markets are booming. In domains like IT, a younger population augurs well. The fast-changing technology and business environment necessitate paradigm shifts. FMCG, services and other sectors similarly benefit from a youthful workforce. As India grows, infrastructure development, and areas like nuclear, aerospace and defence "" once the near-exclusive domains of the government "" are gradually opening up to private sector participation. A host of companies are expanding operations in this space.

This has resulted in a mobility of expert and experienced manpower from companies having the required domain knowledge to new companies entering infrastructure development, defence and so on. This affects the aggregate domain knowledge in the company. Add to this, the separations due to retirement, and it brings the aggregate domain knowledge down further. Those retiring at 58 or 60 are still in good health and have many more years to add value. They would find employment soon, often with a competitor. Human capital would be lost with the benefit accruing to a competitor. For companies that have been leaders in the core and infrastructure domain, retaining human capital and domain knowledge is vital. This is possible by keeping within the company's fold those due to retire who are performers and remain physically and mentally fit.

Adopting flexi-retirement is a win-win proposition. Transitioning to a new work culture and environment is difficult as one progresses in years. The company can utilise the knowledge and competence of years and also utilise the same people to mentor and develop young talent and laterals. Retaining in service those due to retire under the present retirement age norms is a practical need for such companies. Flexi-retirement age is thus an imperative for them. It is situation-driven. What is best for a company needs to be continuously reviewed because of the dynamic work environment.

Tarun Sheth,
Director,
Shilputsi Consultants

Large scale exceptions to a retirement policy will create bigger organisational issues than those solved by the initial decision

A retirement age is based on the assumption that as individuals grow older they lose energy and ambition, resist change, become more expensive and may choose to focus on social rather than career concerns. This is not true for everyone, but because we do not know of how many and of whom this is true, organisations need a clear retirement policy.

A mandatory organisation-wide retirement age is necessary especially for larger organisations where negotiating a retirement age with every individual is not possible. (It need not be uniform, as some jobs require a high level of performance of body functions or motor co-ordination which generally deteriorate with age.)

A policy on retirement facilitates succession planning, manpower development, financial outflows like gratuity as well as organisational changes. At the individual level it aids in planning one's career and finances as well as life beyond retirement.

The absence of a retirement age can lead to gerontocracy, a tendency to stick with the individual, or managers using retirement as retribution or distributing patronage. Indian firms that have migrated to a mandatory retirement policy have indeed experienced pain, as witnessed in the battle between Russi Mody of Tisco and Ratan Tata.

While there is no sanctity about any particular age for retirement, it seems that with increased life expectancy in India, the retirement age can be raised to 60. In the next 30 years, it can even go up to 62 or 65.

Does that mean that organisations retire everyone who reaches the retirement age? Rare exceptions can be made when continuity for a limited (say a maximum of one year) period is required or individual expertise of a rare kind is needed for some time. It is important to note that exceptions must be rare and a process involving top management with HR is drawn up to provide fairness and transparency. The breach of these two conditions "" exceptions and due process "" will lead to organisational issues larger than the retention of the retiree would have solved.

How do organisations ensure the smooth implementation of their retirement policy? Through proper manpower planning; designing structures for current business plans and future strategy; and good performance management systems backed by training and development. What if an organisation suddenly discovers it is short of people it needs and wants to retain its older people beyond retirement age? Such a company is obviously caught with an inadequate manpower planning and development process. Perhaps, it was inundated with additional business beyond its expectations. However, it may do well to remember that creating large-scale exceptions to retirement policy negates the very rationale of the policy. It is also going to create problems similar to those experienced by companies that have moved from no policy to a retirement policy.

The views expressed are personal