In the context of an ageing population, both here in Hong Kong and around the world, Mohan Datwani FCG HKFCG(PE), Institute Deputy Chief Executive, explores the governance, ethical and ESG considerations relevant to retirement arrangements.
The World Health Organisation confirmed recently that the world’s population is ageing more quickly than before. For instance, in 2020 there were more adults aged 60 and older than children under five. Moreover, the percentage of people over 60 worldwide is predicted to increase from 12% to 22% between 2015 and 2050.
Age-inclusive workplaces are also increasingly recognised as being part of organisations’ ESG responsibilities. The UN Sustainable Development Goal 8 calls for sustained, inclusive and sustainable economic growth, as well as full and productive employment and decent work for all. Additionally, from a diversity perspective, older workers who may provide insights based on their experiences should be included in the employment mix. While there is no one-size-fits-all, businesses should consider the retirement age issue more generally as part of their commitment to diversity and inclusion, along with sustainability in the context of an ageing population.
Age considerations relevant to Hong Kong’s talent shortage
The ageing population trend is also apparent in Hong Kong. According to a poll by one of the city’s main business chambers, ‘nearly three in four Hong Kong companies have been experiencing a labour shortage, with the majority reporting that the issue has persisted for at least a year’. The Hong Kong General Chamber of Commerce surveyed 196 members in April 2022 and discovered that 74% were struggling with a talent shortage. 61% of respondents indicated that the labour shortage has persisted for one to three years, while 22% said it has persisted for longer.
The government is aware of this problem (see Figure 1) and is implementing a strategy to draw talent from all over the world to reclaim its position as a hub for international trade. It was successful in drawing applications, particularly from the Mainland, but it should consider longer retention of experienced employees in the workplace. Experienced employees have knowledge and skills that have historically contributed to Hong Kong’s success.
Rethinking the retirement age
Since individuals are living longer and the population is getting older, many governments around the world have been adopting different retirement age models. In Hong Kong, the government has taken the initiative to raise the retirement age from 60 to 65 for civilians who join the civil service on or after 1 June 2015 under a contractual model.
There are other retirement age models that governance professionals should be aware of since they can have ESG implications and can affect the resilience of business operations, especially in the multi-jurisdictional business context. The various retirement age models include the freedom of contract, and the prohibitive and hybrid models.
1. Freedom of contract
There is no statutory retirement age (SRA) in Hong Kong, but contract parties can agree upon and implement a default retirement age (DRA). The government initiative to raise the retirement age for new civil service hires has prompted many businesses in Hong Kong to reconsider the appropriate retirement age. It is important to remember that people are healthier and are expected to live longer because of medical advances. Organisations should also consider how many workers are expected to retire and plan for their extensions, where appropriate. It will make sense from the standpoint of the employer–employee relationship to have a policy regarding discussions about when a person should retire and whether there could be other arrangements, for example part-time employment. In the end, the issue under this model is one of communication.
2. Prohibitive model
A DRA under any contractual arrangement is viewed as a kind of ageism (that is, age discrimination) in the UK and other countries. It is prohibited to treat a person unfairly or differently based on their age and, in this case, for continued employment. Except for specific SRAs authorised by law, such as for firefighters, it is against the law for an employment contract to stipulate a retirement age. The question that countries like the UK focus on is why a person should be obliged to retire at a specific age when there may be no valid justifications, such as physical restrictions on manual labour, loss of faculties for intellectual jobs, talent development and succession planning.
In reality, it is not even acceptable to inquire about a person’s anticipated retirement date, making it difficult to make long-term business plans for operations. This is the major drawback of this model from the business perspective. However, where a business has exposure to the UK and similar jurisdictions, legal and compliance will need to consider the long-arm reach of the law of these jurisdictions from the compliance perspective.
3. Hybrid model
The Retirement and Reemployment Act (RRA) was adopted in Singapore in 2012. This resulted in the creation of an SRA of 65. Companies must, however, provide eligible individuals with reemployment possibilities up to the age of 68. Using the Skills Development Levy (SDL) Act, the government pushes businesses to raise employee skill levels. The employer must make a minor compensatory payment to the employee if the parties cannot reach an effective agreement to continue the employment following the SRA. The key result is that everyone knows when and how to start to talk about retirement and retention arrangements.
Combating age discrimination
Age discrimination in the workplace in Hong Kong was the focus of a study commissioned by the Equal Opportunities Commission (EOC) in 2016 that aimed to gauge the problem’s size and weigh the possibilities of enacting legislation outlawing it. According to the research, more than one-third of respondents said workplace age discrimination was a serious issue for older workers. However, over 60% of those polled were against the creation of an SRA. Most individuals agreed that a person’s abilities, not their age, should determine when they should retire. Others argued that employers and employees should be free to negotiate retirement arrangements together. According to the survey, it seems that the freedom of contract model predominates in Hong Kong, with the caveat that employees would prefer adequate communication about retirement decisions and follow-up employment.
The EOC study also describes the actions taken to address ageism in the workplace, including those in Hong Kong, Japan and Australia, along with the UK and Singapore (discussed above).
Hong Kong has tried several times to determine what the general population thinks about the rules forbidding age discrimination. According to surveys conducted in 1999 and 2001, there is a disconnect between people’s views on age discrimination and their actual experiences. This might change with time as the debate is a continuing one on business flexibility versus ageism.
In Japan, a provision mandating businesses to provide equal opportunity to all employees, regardless of age, was added to the Employment Measure Act (EMA) in 2007. Some programmes, including on-the-job and off-the-job training, support new and experienced workers. Senior employees are encouraged to find employment thanks to the Older Persons Employment Stabilisation Act (OPESA).
Age discrimination was made illegal in Australia’s states and territories in the 1990s. The Age Discrimination Act of 2004 and the Fair Work Act of 2009 protect individuals from age discrimination in several areas of public life, including the workplace. The Australian House of Representatives recommends salary subsidies, skill-building projects and informational campaigns to entice mature workers to participate in the employment market.
Talent retention and retirement arrangements are closely related issues that are likely to become material ESG issues as the population ages. Since managing a business requires people, it is important to keep up to date with these developments and engage with this material governance issue affecting corporate sustainability and resilience.
Mohan Datwani FCG HKFCG(PE), Institute Deputy Chief Executive
The Hong Kong Chartered Governance Institute