Retirement age for the private sector

What the proposed changes to withdrawal rights under the EPF Act would achieve is that employees will have to wait till they are 60 to collect their benefits. It means that the Government will have longer control over the money in the fund. Maybe a good enough reason from the point of view of the Government but is it helpful to the working class? Women may now take their benefits at 50 

By Franklyn Amerasinghe

The media has been informing us that the Government wishes to raise the age of retirement to 60 years for the private sector.

Retirement is connected to the Termination of Employment (Special Provisions) Act of 1971 which was introduced to deal with a situation when the private sector institutions were being strangled into closing down by the lack of raw materials to make them viable, and also faced with a hostile political environment which wished to see the production in the hands of the Government. 

All Government-owned companies and Government institutions were exempt from the Act. The intention was to prevent mass redundancies but drafted expansively to cover all situations of termination of employment. The Act covers retirements where an employee does not have a retirement age spelt out in his contract of employment or is not covered by a Collective Agreement. 

The question of retirement at 55 years for males and females in the companies has never been an issue. In the private sector, a valuable employee will be continued in employment even if he is eighty years old! It all depends on whether he could make a valuable contribution to the workplace. In such a case if his contract is silent one would require the consent of the 80-year-old to retire him/her and if this is not possible one has to join the queue asking for permission from the Commissioner of Labour.

It is clear that the private sector has no issue with good and productive employees whatever their age. The issue is that the private sector does not wish to retain employees who are unfit to continue whatever their age maybe. The Termination Act protects incompetent employees whose services can be terminated only under the Act in view of a decision of the Supreme Court given many years ago.

The inappropriateness of the Act has resulted in many devices such as outsourcing unskilled work (some even outsource skilled work) and the use of casual labour. Even some multinationals keep casuals for a little under 12 months and then terminate them so that they cannot claim coverage under the Act. The 60-year rule will no doubt again test the ingenuity of employers who will come up with solutions which give them more control.

In the apparel industry which is our most significant exchange earner and leaving aside the plantations, the sector employing the largest number, the difficulty is finding employees and most female employees would leave after five years when they get a gratuity or when they marry. I believe I came across only one factory during an ILO-funded project where there were older females working but they were all from the vicinity of the factory and I suspect the productivity was rather low. My project was in relation to dialogue for higher productivity and the production lines had to be comprised of groups who were either related or friends, ideal conditions for gossip and low productivity!

The other question is whether an employee who is required to have nimble fingers and the ability to concentrate on a task for long stretches could do so till 60? If they can then an employer would have no hesitation in employing such person. The question, is should not the employer have the right to determine this?

If the age of retirement is 60, we may see a proliferation of terminations for negligent work. This would be a disciplinary issue as the employee already has years of experience at the same job. If the employees who come from far-off villages as in the case of the Export Zones do not turn up regularly for work they would still be terminated on disciplinary reasons.

What the proposed changes to withdrawal rights under the EPF Act would achieve is, that employees will have to wait till they are 60 to collect their benefits. It means that the Government will have longer control over the money in the fund. Maybe a good enough reason from the point of view of the Government but is it helpful to the working class? Women may now take their benefits at 50.

Although the Termination Act has a cap of Rs. 1.25 million, the reality is that most employers negotiate separation schemes so that they do not have to go before the Commissioner for permission to terminate and participate in inquiries which is time consuming. Many payments are well above the ceiling depending on how desperate the employer is in restructuring his business. A service organisation recently negotiated a deal with its CEO who received in excess of 30 million we are informed.

In the existing computation table one finds that at a maximum service of 34 years and above, one could receive a maximum of Rs. 1.25 million.  This translates to the amount an employee on a salary of Rs. 36,765 per month would receive. If one doubles the compensation payable then it would mean that the person receiving the maximum would have to get double that monthly salary to receive the benefit. The national minimum at the moment is Rs. 10,000 + 3,500 statutory allowances, so the poorer paid employees will not benefit from the maximum being adjusted.

This leads us to the issue that the Termination Act covers executives of all levels as well. The intention of the Act was to benefit those in vulnerable groups and who will not be easily employable. What is the justification for paying compensation to those who are easily employable and for whose skills there is a demand? We do not have a regulation which compels an employee to stay on in employment and at Executive level the employee is generally looking around for employment at a higher grade and on better remuneration all the time? There is hardly any executive who would resist an offer for better terms.

In fact the irony is that there are employees especially bank employees who have been retrenched, paid handsome compensation, and then walked into other jobs with hardly a break. Of course, the current aberration in market conditions due to the pandemic should not be cited as a constraint, as laws when passed will never be changed to reduce a benefits to employees.

It is not irrelevant to mention that during President Kumaratunga’s time, she directed the late Lakshman Kadirgamar and C.V. Guneratne to formulate a scheme of compensation. In discussions with the EFC, we proposed a computation of half-a-month’s salary into a possible 38 years of maximum service (reckoned by a service from 18 years to 55 years – 37 years rounded off at 38). It gave a possible payment of 19 months’ salary. The Ministers suggested that we should make it a maximum of 20 months’ salary, which we agreed to.

This was a compromise reached in view of the recognition by employers that it was politically dangerous to remove the Termination Act although successive governments, including the UPFA in the 1994 UPFA Manifesto entitled an ‘Agenda for Action – Sri Lanka in the year 2000’. The history of the attempts to rectify a situation which existed in 1971 and became a feature of industrial relations for the next 50 years is important as we should look at the damage this restriction on termination has had on our economy.

What we need at this moment in our tragic economic situation is more encouragement of the private sector, not more shackles. If it was to genuinely benefit workers I would be the first to cheer, but I am not convinced at all that this is the motive. In fact I cannot even imagine that objective thought has gone into the proposal.