Dreams of early retirement begin to fade

Everyone is still entitled to dreams of early retirement, but the wake-up call of the recession has forced many to recognise the widening distance between dreams and reality. Rather than expecting to quit the workplace at 50 or 55, with a tidy nest egg and plans for nine holes a day, thoughts are turning instead to the possibility of having to work beyond 65 simply to build up sufficient financial resources to see out one's later years.

Already, in a number of Western countries, where state and corporate pension schemes are increasingly under-funded, moves are afoot to raise official retirement ages. In some cases, 70 is being suggested, made necessary by the fact that projected deficits for various government and company pension plans mean they could not otherwise meet long-term liabilities.

Hong Kong has traditionally been more laissez-faire, leaving workers to rely more on the so-called third pillar of retirement planning - individual savings. More recently, of course, there has also been the MPF. But few would claim the proceeds from this scheme could provide for someone's full financial needs through a lengthy retirement.

As a result, average workers in Hong Kong, burned by the economic downturn, are being forced to do some serious rethinking. They must contemplate the fact that life expectancies are increasing, assumptions about stock markets rising over time may be invalid, and that the return of inflation will likely eat away at savings.

'At the end of the day, if I need more money, I've got to keep working, but I don't see employers wanting to keep on all these 65-year-olds,' said Carl Redondo, general manager of Hewitt Associates in Hong Kong. 'So, people need to think long and hard about what work they could be doing if they postpone retirement and would be wise not to assume they can simply carry on as before for a few more years.'

He noted the two contrasting sides to the problem. Individuals may want to stay on longer but, in Hong Kong at least, there is no reason to think employers will be willing to keep them. Older staff may need the money, but their levels of enthusiasm and actual contribution in the workplace may be tailing off. Arguments can be made in favour of experience, industry contacts and willingness to mentor the next generation, but these often do not really stand up in the harsh light of day. Technology and workplace practices are changing so fast that skill sets easily become outdated and, in reality, passing on contacts and corporate know-how to a younger colleague takes no more than a six-month transition.

Redondo also pointed to the costs. 'In terms of salary, a 70-year-old might be the equivalent of five graduates, three middle managers, or two upcoming high-potentials,' he said.

He also pointed out that no one had cause to worry about senior executives and high revenue generators. It was reasonable to assume they had a good financial cushion and relative freedom of action. The area of concern was the broad band of workers who had never been in a position to 'cash in' with high salaries, generous bonuses or cushy directorships.

They may be competent, but still have had no significant promotion for 10 or even 20 years. Broad trends also show that, in the latter stages of their careers, such people are more likely to be working for small and medium-sized enterprises (SMEs) rather than for blue chips or multinationals. Generally, larger organisations are more attuned to 'managing out' employees thought to be just going through the motions or not noticeably adding value. So, while a lot of companies in Asia may have a stated retirement age, as things stand, the responsibility for dealing with older staff, who want to stay on in the workplace, is likely to fall disproportionately on SMEs.

In practical terms, Redondo said, human resources departments and senior executives in Hong Kong did not need to rush out new policies or come up with detailed plans. It did make sense, though, to take due note of evolving pressures and expectations, and to be aware of measures taken in other countries to tackle the issue.

For example, in South Korea, a form of salary capping is becoming more common. Provisionally, older workers can stay on with an employer, but contractual terms will specify a salary reduction of about 10 per cent each year after normal retirement age. That will be the starting point for any discussion, with good performance 'rewarded' with a reduction of perhaps only 8 per cent. There can be exceptions, but this mechanism is seen as fair reflection of likely lower productivity and, from the employer's point of view, encourages people to leave without forcing them to.

More usual in Western economies, especially since the downturn, is to put forward options for demotion or redeployment. Companies have to be careful because doing this may trigger a technical redundancy and large payouts. But with the right approach, they can explain that a role is eliminated, suggest voluntary redundancy, and either offer another job or the chance to go into a pool of workers for redeployment.

The key to such schemes is for employers and older employees to recognise the opportunity to create a win-win situation. On the one hand, pay will presumably be less than in a previous role, but it will still be an income. On the other, companies can find ways to draw on characteristics, such as reliability, patience and precision in areas, where they make a difference.

For example, someone may move from middle management to being a bank teller or from running a sales team to a part-time spot in the call centre.

To provide impetus, he noted, it might be necessary to look at offering government incentives to hire someone over 65. Potentially, this could be via concessions on corporate tax as part of a structured review of part-time work options and phased retirements.

'I'd prefer to see us going this way, rather than bringing in defensive measures,' Redondo said. 'It should not be that employers are forced to keep people on because, overall, it is not a company problem - they are there to make money.'

Etta Wong, director in Greater China for consultancy firm Lee Hecht Harrison, said that, in general, companies in Hong Kong were reluctant to recruit older workers. Therefore, it was important to alter mindsets and increase flexibility.

'The government can encourage companies to hire more senior-age people and help the elderly to transfer their skills,' Wong said.

'Personally, I believe the government [should also] review the percentage and maximum amount of MPF contributions from both employers and employees.'