Retirement severance needs fine-tuning

Recent legal changes covering private-sector employment should be just the start of a broader scheme to serve an ageing society. By Calvin Wilkinson

You don’t need to be a demographer to know that the Thai community is rapidly ageing. When the current generation entering the workforce now moves through to retirement, there will be more than twice as many Thais aged 65 years or older as there are today. And they will be relying upon the people in the workforce, their children, to provide the standard of living in retirement many have come to expect, except that there will be more than twice as many of them.

The current government back in 2017 saw the need to start to move towards a prescribed statutory retirement age of 60 for all workers in the private sector, not just those in the public service. Section 118/1 of the Labour Protection Act was passed to give employees the right to choose to retire after reaching 60 years of age and to receive the same severance pay as they would be entitled to had they been dismissed.

The amount of retirement severance fixed under law will depend on how long the employee worked for the employer — ranging from 30 days’ basic pay for at least 120 days of employment and up to 300 days of basic pay for at least 10 years or more of employment.

For many employees who previously relied on the generosity of their employers to provide a retirement package, the establishment of a statutory retirement age and severance pay is a move in the right direction. That said, it remains to be seen how effective this change will be.

One criticism of Section 118/1 is that its lack of detail will result in disputes between employees and employers requiring adjudication. For example, it says that the statutory retirement age of 60 only applies in cases where the retirement age has not been stipulated by a work rule or employment agreement, or has been stipulated but exceeds 60 years of age.

What happens, however, when an employer stipulates a retirement age equal to or lower than 60 with a severance payment lower than the statutory severance rate? It is unclear whether this would be legal under Section 118/1.

Furthermore, from an economic point of view, this amendment is likely to curb labour mobility among older workers, as they will naturally be reluctant to leave their current employer for a different job prior to reaching 60, even one that appears more rewarding or desirable. That is because doing so would mean sacrificing their entitlement to severance pay based on the years that they had accumulated with their current employer.

A more fundamental concern, however, is that this scheme does not adequately address the real structural problems caused by a rapidly ageing population.

For one thing, we can reasonably say that the statutory severance amount will not cover a retiree’s daily expenses for longer than a few years. After all, the original purpose of statutory severance pay was to provide a temporary safety net following an employee’s dismissal, not to provide for their permanent retirement.

It would seem, then, that a more significant policy undertaking is needed to address this issue, which is not only a demographic destiny for Thailand, but also in a number of other countries too. This will require a great deal more imagination and initiative on the part of the government, which perhaps begins with an act of recognition of what solutions have worked in other countries.

Looking abroad, superannuation has been one of the great undertakings of the past century, and it is now starting to blossom in countries such as Australia and Singapore as a result of the measures they announced a number of years ago.

If Thailand were to implement a superannuation scheme, whereby Thai workers and their employers would commit by law to put some of their income away as savings for long-run retirement, and the government also prepares to put income away via tax concessions and direct payments into superannuation accounts, we would see a very large pool of savings develop on behalf of each and every Thai. And this would produce an income stream in retirement which would guarantee them a much higher standard of living than they have today even under this amendment.