Retrenchment among Employees Aged 63 and Older in Last Five Years

Mr Vikram Nair asked the Minister for Manpower (a) what is the rationale under the Tripartite Guidelines for Fair Employment Practices for workers who are losing their entitlement to retrenchment benefits to be entitled only to Employment Assistance Payments upon reaching the age of 63; and (b) whether the guidelines can be amended to reduce a "cliff effect" in the drop in retrenchment entitlement for long-serving workers upon turning 63.

Thank you, Sir. First, the data shows that workers who are past the retirement age are not disproportionately affected by retrenchment, compared to other age groups. From 2018 to 2022, the average incidence of retrenchment among residents aged 63 and over was 3.8 per 1,000 resident employees, lower than the overall figure of 6.1 for the entire resident workforce. Over the same period, the absolute number of retrenched residents aged 63 and over remained low, at an average of 450 per year.

The Retirement and Re-employment Act requires employers to offer re-employment to employees above the prevailing retirement age and below the prevailing re-employment age, or else employers will need to pay eligible employees the Employment Assistance Payment, or EAP. The recommended EAP amount in the Tripartite Guidelines on Re-employment of Older Employees is carefully calibrated. The EAP should not be so low that it provides employers an easy alternative to offering their employees re-employment.

However, if the EAP is too high, it may deter employers from hiring or retaining senior workers nearing retirement age in the first place. The EAP quantum is tied to the legal obligation to offer re-employment and should not be compared to retrenchment benefits, which are not mandated by law.

The quantum of retrenchment benefit is usually stipulated in the employment contract or is negotiated in a collective agreement between unions and companies. It thus varies across companies, though the vast majority of employers do follow the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment in paying retrenchment benefits, generally paying between two weeks and one month of salary per year of service, to eligible employees.

In some cases, there is an agreement between the union and the employer to scale down the quantum of retrenchment benefits payable as the worker nears the statutory retirement age. Any real or perceived "cliff effect" between retrenchment benefits and EAP is dependent on the quantum of retrenchment benefits stipulated in the individual's employment contract or the collective agreement.

The Ministry of Manpower (MOM) will continue to work closely with the tripartite partners to review our retirement and re-employment policies, to ensure they remain relevant and foster progressive workplaces that enable our senior workers to continue working if they wish to.

Sir, I have three clarifications for the Senior Minister of State and these are based on feedback I had received in my capacity as advisor to the Advanced Manufacturing Employees' Union (AMEU), with which I think the Senior Minister of State is very familiar. So, what I was informed is that for many senior workers who are above the age of 63, their EAP benefits are no longer tied to their years in service.

So, what this means is, in substance, up to the age of 63, they are very expensive to lay off if they have been working for a long time. But after the age of 63, the EAP payments are no longer based on years in service. So, someone who was very expensive to lay off or retrench at the age of 63, suddenly becomes very cheap to lay off. And because senior workers also have the greatest difficulty getting re-employment, I think it is important for them to be protected.

My first clarification is: the figure that was given for workers over 63, that is, only 3.8 per 1,000 were retrenched, does this also take into account workers who may have been retired and not re-employed? Because I understand that is the mechanism that is sometimes used. So, the worker is not actually re-employed and given early retirement.

The second is, I think the Senior Minister of State has mentioned that the EAP is carefully calibrated and open to negotiation. I have two related clarifications on this: first, in relation to employees who have the benefit of collective agreements, how many of these collective agreements tie the EAP payments to years in service? And second, for employees without collective agreements, how many of them are eligible for retrenchment payments?

Sir, on the Member's first clarification, on the 3.8 per 1,000 resident employees, that refers to retrenchment and does not include those who voluntarily retired. We are talking about retrenchment.

On the second issue. I just want to correct the statement that was made. The EAP is mandated by law. Retrenchment benefits are open to negotiation. So, it is not the other way around. And the EAP should not be compared to retrenchment benefits, because it is meant to help those who are not re-employed, to tide them over a period of time until they find other re-employment opportunities.

Therefore, it is not something that is tied to years of service, but it is meant to be something that tides them over a couple of months, for example, till the person can find a new job.

The EAP quantum recommended in the tripartite guidelines on the re-employment of older employees, as I said, is carefully calibrated. Because if the EAP amount is too high, employers may then be concerned with excessive cost burden of the re-employment obligation. And then, they will be less willing to retain a senior worker up to the retirement age. In other words, they may choose to then retrench the worker before the retirement age.

If the cost of paying retrenchment benefits is cheaper than paying EAP, it may well be that it will become a perverse incentive to retrench a worker before retirement age instead. This would then be detrimental to senior workers who are close to retirement age.

We want to avoid disincentivising also senior workers from searching for alternative employment if they are not successfully re-employed. It really is about getting enough for them to tide them over a period, but not to be such a windfall that there is no more incentive to look for other employment opportunities that come along the way. And we also should not be creating a perverse incentive to employers to not retain workers close to the retirement age.

I thank the Senior Minister of State for the clarifications. Then, perhaps the question that I should ask is: is the Senior Minister of State aware of whether retrenchment benefits are extended to workers beyond the age of 63, but before they reach the end of their re-employment retirement age?

Sir, as I said, retrenchment benefits will be something more of a contractual agreement between the employer and the employee and it is something that would defer from case to case. I suppose for employers who really want to take care of their employees, there is no real reason why he or she cannot extend benefits to employees beyond the retirement age. But this is not mandated by law and this is something that companies and their employees will have to come to an agreement on.