Rethinking retirement ageThe civil servants in Nepal retire relatively early, and this is not good news for the country.
Pushpa Raj Joshi
Studies have shown no significant difference in the productivity of younger and healthier older workers. In fact, older workers have been found to perform better than their younger counterparts. Today, the active working age of healthy individuals is regarded to be until the early eighties of their lives. This is also the phase when one can transfer the knowledge and experience acquired through a long career into productive outcomes. By this time, the government or the respective hiring organisations would have made financial and temporal investments on their employees. So, the final phase of one’s career should be dedicated to giving back to the organisation where one is employed. The retirement age is generally based on this assumption.
The retirement age in most countries with the highest gross domestic product (GDP) is in the mid- to late-seventies. As per the Organization for Economic Cooperation and Development (OECD), the current retirement age in most European countries is 65 or above. Countries with lower retirement ages (early- to mid-fifties) have comparatively lower GDPs, except for China (54 years). Nepal, with an official retirement age of 58 years for civil servants, falls in the second category.
Compared to global trends, the official retirement age is relatively early in Nepal. However, this age limit broadly applies to civil servants, and one can work well beyond the official retirement age of 58 years in private organisations. Fifty-eight years is quite early to pack one’s bag for good. Studies have shown that this is the peak time of one’s career, and the employee can deliver to his/her maximum at this age. In judiciary and other constitutional commissions, the retirement age is 65; health and education sector employees retire at sixty. This implies that the retirement age for civil servants in Nepal needs immediate rethinking. Even the provision of mandatory retirement after 20 years of service should be obliterated.
The logic behind early retirement in Nepal is that the older generation should make way for the younger recruits. This assumption was based on the government policy implemented decades ago. During the late eighties and early nineties, the life expectancy of Nepali citizens was around 50 years, and the number of government agencies that would recruit officials was limited. In addition, Nepal was partially isolated from the rest of the world during those days. The retirement age of civil servants was 60 years before the reinstatement of multi-party democracy, which was reduced by two years in 1992.
In modern times, the decades-old assumption of early retirement seems illogical. The life expectancy of Nepali citizens has increased considerably, and the average age of the people is predicted to reach 74 years by 2030. Moreover, the Nepali labour market is vibrant today, and the frequency of government and private organisations requiring a skilled workforce has expanded multiple folds. These factors reveal that the retirement policy in Nepal should be immediately reformed.
Civil servants receive up to 75 percent of their salaries as pension after retirement. This amount is constantly increased with regular salary hikes. Hence, bidding goodbye to civil servants at an early age adds a huge financial burden on the state treasury. In 2019, the Parliamentary State Affairs and Good Governance Committee identified this issue and recommended that the government increase the retirement age of civil servants by at least two years. This would have brought uniformity in the retirement age of civil servants and health and education sector employees. In addition, it would have saved the financial burden on the pensions of civil servants for two years. However, the recommendation never came into practice.
With the global increase in life expectancy, early retirement adds to financial liability on governments. Additionally, retiring at an early age snips a long active and energetic life of an individual. The new recruits replacing the retired employees require time to learn their responsibility and gain the required experience in contributing to their maximum capacity. This results in reduced national productivity, thereby restricting the prosperity of the nation. Hence, the retirement age should be adjusted according to contemporary global trends, and maximum output should be extracted from the employees for a more extended period.
For many years, Nepal has been poised at a stale juncture from which the country must swiftly excel. The young working force is forced to leave the country mainly as construction site labourers in the Middle East and the Gulf Cooperation Council (GCC) countries. This practice needs to be reversed, and young people should be encouraged to stay in Nepal. The government should train and employ young workers in various sectors, including agriculture, construction, manufacturing, mineral resources and textile in the country itself. The employees should be paid fairly, and a ubiquitous pension system should be introduced. This will hold the working force in the country, and the young blood will contribute to the development of the nation. The retirement age of employees in all sectors should be adjusted as per the general global trend to the mid-sixties. This is viable, given how Supreme Court judges and members of various constitutional commissions have been competently working till the age of sixty-five.
Having experienced the continuous development of the retirement system in Germany, I feel Nepal should also take a leaf out of Germany’s retirement model. The retirement age in Germany has been increased by one year—to 66—in 2023. From this year, until 2031, the retirement age will be increased by two months each year, and the mandatory retirement age will finally reach 67 years. For early retirement, each missing year results in a 3.6 percent reduction in the gross pension entitlement. This motivates the employees to work till their mandatory retirement age. The late retirement age in Germany has contributed to increased national productivity.
A well-deserved retirement with financial remuneration after an active working phase is a fitting tribute to employees. This is also a fundamental obligation of a welfare nation, and is a general global trend. Hence, Nepal should initiate a ubiquitous pension system in all sectors while adjusting the retirement age, preferably in the mid-sixties. This will ultimately contribute to boosting national productivity, thereby improving quality of life.