June 7, 2014 7:00 am JST

Higher retirement age forcing Malaysian employers to get creative

TOKYO -- Nearly a year after Malaysia's minimum retirement age rose to 60 last July from the effective 55, businesses are coping with suddenly expanded workforces through inventive means.

     "When you look closely, there are two sides to textiles. Don't make mistakes when you put them together," a 57-year-old worker at a Toray Industries factory in the northern state of Penang tells colleagues hired just three months earlier to work on the dyeing line.

     With unemployment at a low 3% and changing jobs a common practice, many companies in Malaysia had faced labor shortages even before the retirement age went up. Toray had thus asked many employees reaching 55, the retirement age set in its employment agreement, to stay on board under one-year contracts. Roughly 200 of the 2,500-strong workforce are that age or older.

     "I'm still healthy, so even 60 is too early for me to retire," says the 57-year-old, who is a 37-year veteran.

     Older generations cost more, so businesses are not necessarily welcoming the higher retirement age with open arms. But these workers possess strong craftsmanship skills, Toray notes.

     "We are taking advantage of the postponed retirement age, having older employees pass down their skills," says Hiroshi Yoshimura, president of a local subsidiary of the Japanese textile company.

     UMW Toyota Motor, a Toyota joint venture in Malaysia, has begun installing automated equipment at a factory. Four and a half decades since the plant opened, such processes as welding and painting are still performed manually there despite being automated in Japan. The employer wants to ease the workloads of old-timers staying on under the new regulation.

     About 50 to 60 workers, or 1% of the plant's total of roughly 6,600, reach 55 every year. They will stay on going forward.

     This "just raises the wages of 1% of our employees, so it has a limited impact on immediate personnel costs," UMW Toyota Deputy Chairman Takashi Hibi says, adding: "We want to create an environment where senior employees can demonstrate their talent."

     In the past, Malaysia had no statutory retirement age. People generally retired upon turning 55, the age at which they can withdraw money from the national pension fund. Many Japanese companies had set that as the retirement age in labor agreements.

     But with Malaysia's average life expectancy rising to 75, the idea that 55 is too young to leave the workforce for good gained traction. Some people used up their pension benefits in only several years, so supporting them became a societal issue. The government, seeing a solution in keeping workers on the job longer, pushed aside industry opposition and enacted the law raising the minimum retirement age.

     Businesses were upset with increased labor costs and social security premiums.

     The preparation period was too short, and it's difficult for companies to accommodate the increased labor, according to Shamsuddin bin Bardan, head of the Malaysian Employers Federation. The five-year delay will add 500,000 or so to the Southeast Asian country's labor force of some 12 million under a simple calculation. As people started working five years longer just a year after the law's passage, businesses are keeping down new hires to reduce costs.

     In Japan, the retirement age of 60 was adopted over the course of several years under labor-management agreements in the 1980s.

     Businesses are also struggling with another issue. With those in senior positions remaining in the workplace, morale is declining among employees who had expected promotions to department or section manager.

     A sales subsidiary of Toshiba will address this problem by creating a new position for older employees next month. "We want to boost the motivation of younger workers," says Hitoshi Katayama, the unit's president.