The current effective retirement age norms in Sri Lanka set by the Civil Service Pension Scheme (CSPS) and Employees’ Provident Fund (EPF) of 50–60 years date back to the 1950s and need to be revisited in line with improvements in health and life expectancy, according to Asian Development Bank (ADB) latest report on ‘Growing Old Before Becoming Rich; Challenges of an Ageing Population in Sri Lanka’.
With the current life expectancy of 31 years for women at age 50, and 18 years for men at age 60, many affected workers can expect to live as many or more years in retirement as they spent actually working. This is unlikely to be sustainable.
The report also said the fundamental challenge in making any old-age income security scheme for Sri Lanka’s aging population affordable and sustainable is to lengthen working lives to match the increased life expectancy.
Whatever the financing mechanism, the ultimate cost of any arrangement for today’s workers is dependent on the ratio of pensioners to workers, or the ratio of how many years people spend in retirement versus the number of years they remain in productive work.
Increasing life expectancy and increased healthy life expectancy mean that Sri Lankans can also work longer than their predecessors; thus, lengthening life expectancy is not only the problem, but also the solution.
Pension arrangements need to support this goal by facilitating higher retirement ages, as well as flexibility to account for future increases in longevity, as well as the needs of those workers who need to retire earlier for health reasons.
“It is essential to build awareness on how raising the retirement age has emerged as a key reform for pension sustainability in other economies with similar demographic challenges to Sri Lanka such as Japan, the Republic of Korea, and Singapore,” the report said.
Also overlooked is the likely signaling effect of CSPS and EPF rules that shape social norms as to when retirement should take place.
“Given the longer periods that most retirees can expect to live in retirement, the real value of pension benefits will erode after several years, just at the time retirees need the most help.
While the ad hoc increase in benefits has been made in response, there is in general a lack of coherent policy on indexation of pension benefits. Instead, devising a mechanism to raise benefits in all schemes, and then controlling costs by limiting the rates of increase may be more sustainable as well as predictable.”
The report said further that the challenge for Sri Lanka is how to expand coverage in a way that is fiscally and politically sustainable, as well as effective.
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