The recent decision by the federal cabinet to abolish the maximum age limit of 65 years for key appointments has stirred significant debate regarding its potential impact on the efficiency and vitality of our institutions. The finance minister Muhammad Aurangzeb has also stressed that extending the retirement age could enhance productivity in later years, benefiting the economy. He also hinted at impending structural reforms to stabilize the economy and foster investor confidence, in line with preparations for a forthcoming International Monetary Fund bailout package. While proponents argue that the move aims to leverage experience and expertise, concerns loom large over its adverse repercussions.
The national pension expenditure is projected to reach nearly Rs2 trillion in FY24, with forecasts predicting a surge to Rs10 trillion over the next decade without reforms. In 2002-03, the pension cost was a mere Rs25 billion, but it has skyrocketed to over Rs1.5 trillion in just 20 years. Pension reforms previously tested in Khyber Pakhtunkhwa (KP) have shown promising cost-saving outcomes, underscoring the urgency to rationalize the existing pension program and transition to more sustainable models.
However, the proposal to raise the retirement age from 60 to 65 years has sparked controversy, with critics arguing it may benefit only senior officials. In KP, a similar measure in 2019 to raise the retirement age to 63 projected annual savings of Rs20 billion. However, it was reversed due to strong protest from bureaucrats and a court ruling. Nonetheless, other KP pension reforms have remained effective.
Critics assert that the removal of age restrictions could hinder career progression for young and talented professionals within organizations. The perpetuation of senior positions by individuals nearing retirement or even beyond it could thwart morale and trigger a talent exodus as competent professionals seek opportunities elsewhere. Doubts persist regarding the government’s assertion of heightened efficiency through the retention of “experienced” leadership.
Studies indicate that extensions granted to senior officials often result in diminished performance. Shielded from the prospect of retirement, incumbent managers may become complacent, resistant to innovation, and impediments to progress. Furthermore, extended tenures entail substantial financial burdens, diverting resources that could otherwise be allocated to training and development initiatives aimed at cultivating a dynamic and future-ready workforce.
In hindsight, retirement can mark the beginning of one of the most fulfilling phases of life, according to a new study published in The Economic Journal. The research highlights the health and well-being benefits linked to retirement, largely due to an increase in “locus of control,” a psychological trait that reflects an individual’s sense of control over life outcomes. Hence, a major disadvantage of increased retirement age is adverse effect on the overall quality of life. Moreover, many individuals depend on their pension income for survival and may struggle to find or maintain employment as they age. Older adults are also frequently more susceptible to physical and mental health problems, which can worsen with extended work hours. Essentially, increasing the retirement age could heighten inequality in the workforce. Those with higher incomes and better health would likely be able to continue working, while individuals with lower incomes and poorer health might not. This finding is particularly relevant as many countries including Pakistan are consider raising the retirement age.
Dr. Rong Zhu, a Senior Lecturer in Economics at Flinders University, explained, “This increased internal control accounts for one-third of the positive effects of retirement on health and about one-fifth of the improvement in subjective well-being.” However, Dr. Zhu noted that these positive effects are more pronounced among certain groups. “The benefits are significantly skewed towards the less educated, urban dwellers, welfare recipients, and those without long-term health conditions. We must consider the unintended consequences of delayed retirement on health and well-being, particularly the potential reduction in the sense of personal control over life outcomes.” Dr. Zhu warned that extending the working age could diminish workers’ perception of their influence over their own lives. “If individuals work beyond retirement age, they are less likely to attribute life outcomes to their own choices and actions.”
The research takes Australia as a test case. The public pension take-up rate for the Australian Age Pension is the second highest among OECD countries, with approximately 70% of Australian retirees receiving either a partial or full pension. The study examined the eligibility age for the Australian Age Pension, which has gradually increased from 60 to 67 for women between 1995 and 2023, and from 65 to 67 for men between 2017 and 2023. Conducted in collaboration with Professor Andrew Clark from the Paris School of Economics, the research explored changes in socio-emotional skills as individuals transition out of the workforce. While the “Big Five” personality traits (agreeableness, conscientiousness, emotional stability, extroversion, and openness to experience), risk and time preferences, and trust are less changeable among older Australians, the study found that locus of control is notably malleable.
The findings of this study could inform the development of policies and frameworks aimed at enhancing economic outcomes through better understanding of socio-emotional skills, preferences, expectations, and constraints.
Advocates for the elimination of age limits argue that exceptional talent warrants special consideration. However, a more sustainable approach lies in establishing robust systems for identifying and recruiting qualified individuals irrespective of age. Countries like Japan, renowned for their reverence for elders, uphold mandatory retirement ages to maintain a balance between experience and fresh perspectives.
The recommendation to abolish age limits in order to foster a “diverse talent pool” raises pertinent questions about its efficacy. True diversity encompasses not only skill diversity but also generational perspectives. Instances from the private sector, particularly in media houses where editors cling to power indefinitely, serve as cautionary tales of the pitfalls of outdated leadership models.
The potential stagnation awaiting public institutions under the new policy underscores the imperative for a paradigm shift. Leadership positions should not be regarded as personal domains, but rather as avenues for driving institutional growth and innovation. Those seeking enduring roles may find avenues in politics or business, where age restrictions are less stringent.
Keeping in view these considerations, it is imperative for the government to reassess its decision. Rather than perpetuating antiquated models, the focus should be on fostering dynamic and forward-looking institutions poised for the challenges of the future. Let us prioritize the construction of institutions that evolve with the times, rather than ones mired in the past.
The author is a PhD scholar in English Literature, a Lawyer, and an International Relations analyst.
