Retirement@62..64..66?

Retirement @ 62…64…66?

It has been reported that the central government is considering raising the retirement age for the central government employees from 60 years to 62 years to manage the cash flow problem posed by payments of gratuity. The move is expected to ease off pressure of payments to the retiring employees during next 2 years. The government would of course do all the calculations & projections of cash flows involved and defer the problem of today to tomorrow. The underlying assumption is that after two years the finances would be in much better shape to pay not only the carry­forward­ retirees (CFR) of two years but also those who would have retired in any case in next two years if the age limit was not changed. In the mean time the government would have to pay full salaries and benefits to these CFR personnel who are in any case in retirement mode. The burden therefore is considerable and unlikely to ease off pressure two years later.

More than just managing today’s cash flow, the issues involved are having far reaching impact on various other aspects: 1. The IAS lobby seems to be concerned only about the blocked promotions for few bureaucrats and just for that they may succeed in blocking the move. But that would be blessing in disguise resulting in the demise of ill conceived move.

2. The central government would automatically show the way for the cash strapped states also and they would follow sooner than later. This would add pressures on the states for implementation of 6th pay commission as well as increasing retirement age to 62 years. 30,000 teachers in Maharashtra went on strike demanding implementation of 6th pay commission which was not done in spite of central assistance. Thus states are unable to keep the pace without generating resources of their own. The proposed move would add to economic woes of all the states further.

3. The move would automatically push the central public sector enterprises also to adopt the same, pushing their costs further and reducing their profit margins for even healthy ones.

4. While the employees on the verge of retirement are definitely a resource of experience and knowledge to the governments, the efficiency and effectiveness is a big question mark for a larger segment of such employees. While the top levels may still be assets, the middle and lower levels are more likely to be liabilities. If the government needs to retain experts and knowledgeable employees at different levels, it may do so by offering them post retirement assignments as is the practice in any case. This would certainly make a very large saving on the wage bill and yet make good personnel available if essential.

5. The government on the other hand has a target for generating jobs for youth. The cost of employees at entry stage is much lower than at retirement stage. If the government

enhances retirement age to 62, it would not have a case for recruitment at entry levels.

The government would be better off letting the employees retire at 60 and induct fresh recruits for training and development.

6. The central government should be setting examples by sizing down the bureaucracy and not carrying the excess baggage longer than necessary. That is better way to manage the cash flows than deferring the repayments of inevitable “debts”. The government should in fact have a plan to make the human resource management its top priority to improve organizational methods, systems and delegation of authority to make the organizations nimble and quick footed instead of carrying the flab. There is no point in carrying on the back the employees who have been counting months and days for retirement. Such employees in countdown mode perhaps would have stopped contributing meaningfully already.

7. In order to manage cash flow and liabilities on account of the gratuity etc. the government may explore possibilities of deferring only the gratuity component with over due interest. The gratuity could possibly be credited to provident fund account for a period of two years qualifying for payment of interest. Retirees could always draw funds from PF as per existing rules to manage their commitments every year so that they are not hurt. Alternatively they may draw entire gratuity amounts with interest after two years.

8. At a time when fiscal deficit is sure to exceed 7%, it would be prudent to cut expenditure not just in short term but in long term also. Delaying the obvious would not solve the problem. There have been no efforts to downsize the bloated bureaucracy. In fact employees should be encouraged to take VRS. Air India has been told by PMO with a directive to take 30­50% salary cut across the board to manage financial situation. Can the rest of bureaucracy have similar solution to the problem...ironically having got huge benefits of 6th Pay Commission! If Air India is sick, so is the Central Government with inability to make payments of gratuity and pension for retirees. Knowing very well the financial situation, why 6th Pay Commission recommendations were implemented? Public sector companies and states are clearly told to implement Pay Commission recommendations only if they are able to pay. Why different parameters for central government departments and public sector companies & states?

9. The savings accruing due to increase in retirement age for about 1.5 lakh employees is estimated around Rs 15,000 to Rs 20,000 crores. The government should explore other alternatives for saving such amount so that spin off effects on state governments and on its own long term finances will be avoided. Today the age may be raised to 62, tomorrow after say few years, it may be raised to 64. Where does it end? Let the government not hide behind the statistics of UK, US or European countries where the demographic profile and life expectancy is permitting them to let people work beyond 60­62 also. India has growing younger population and we have to create jobs for them. So blocking the employment opportunities for young or bloating to keep elderly, as we are broke, is short

sighted policy. Nay, it is fiscal profligacy to manage fiscal deficit if at all.

Vijay M. Deshpande Corporate Advisor, Strategic Management Initiative Pune August 21, 2009 Scroll Down for my other blogs or Visit www.strami.com