TRENDS IN THE TIMING OF RETIREMENT. AN ANALYSIS OF PUBLIC SERVANTS IN UGANDA Kibs B Muhanguzi, Phd Candidate, College of Economics and Management Sciences, Makerere University, Kampala Uganda, East Africa.
Trends in timing of retirement, if understood, are critical for policy management especially in matters related to labor supply in a country. Timing of retirement can be instrumental in forecasting the time new jobs are created. In Uganda, increasing levels of unemployment that widen intergenerational inequality cause a great alarm. Given the design of the Public Service Employment Act, retirement trends therein are still unclear. For any effective labor supply policy design, the starting point is the trends in timing of retirement. This study therefore investigated retirement trends of public servants in Uganda with hope that the trends help in investigating underlying explanatory factors. Using the Ministry of Public Service’s exfacto and longitudinal, cross-sectional data of retirees, the study used descriptive statistics to analyze the trends and tested the null hypothesis that average retirement age is not significantly different from the statutory mandatory age at exit. The study found a small proportion of voluntary retirees with majority retiring at mandatory age but with an average age of retirement hitting roughly 2 years below this age. Empirical findings show that public servants’ average age at retirement is significantly different from the mandatory age.
Keywords: Pension scheme, Policy, Public servants, Timing of retirement, Trends.
Timing of retirement can be instrumental in forecasting the time new jobs are created. Trends in timing of retirement if understood are critical for policy management especially in matters related to labor supply in a country. The rate and magnitude of timing of retirement helps regulate a country’s labor supply. Factors that influence the decision to retire, if when manipulated to the desired level can influence the magnitude of jobs created. The relationship between pensions and timing of retirement can be best evaluated if retirement trend is known with certainty.
Trends in timing of retirement if understood can be instrumental in shaping policies related to national labor supply, old age welfare and financial discipline of the pension scheme. Retirement trend in a given country can have firm-specific human resource planning and management policy indicators, labor market implications in the entire economy and fiscal policy lessons. Significant early retirement can be a challenge to National employment programs as was the case in German during the 1980’s and 90’s where provision of incentives were made to attract immigrant (guest) workers to stabiles labor supply (Bogomolova, 2012). Likewise, when there are insignificant sizes of early retirees, this may create fiscal stress in terms of benefits claimed by retirees under pay-as-you go pension arrangement.
In Uganda, Public Service Employment Act, has the public service pension scheme that give pension benefits to retiring employees who are aged 45 and above. After age 45, a public servant is free to request for early retirement package as long as he has served minimum 10 consecutive years. As long as a public servant clocks age 60, they are mandatorily made to retire (Barya, 2009). In this pension scheme design, the expected pension benefits, the age and experience are seen as key factors that may induce timing of retirement (early withdrawal or mandatory retirement).
The well-known demographic structure in Uganda is and will in the near future put serious pressure on the government’s possibilities to supply social welfare services. This problem is reinforced by the ignorance of retirement behavior of employees in the country. It is therefore imperative to understand the retirement behavior of workers so that future demographic effects are planned for in advance. The objective is to analyze timing of retirement trends of public servants in Uganda. It is hypothesized that public servants’ average retirement age is not significantly different from the statutory mandatory retirement age.
2 Review of related literature
2.1 Timing of retirement
Timing of retirement shows the time when an employee decides to withdraw from labor force. It may not mean cessation of work per se (Berkovec & Stern, 1991), it may include numerous options beyond leisure activities like paid and unpaid bridge employment, pursuit of avocations and entrepreneurial activities, second careers, and continued education (Zabalza, Pissarides & Barton, 2010). In this study, the concept-timing of retirement-is looked at as the time decision at which a public servant withdraws from public service irrespective of what occupations they are to join thereafter.
Wide literature focus on retirement behavior of workers and the main forces that drive individuals’ decision to retire from the labor market (Gruber & Wise, 2005) but not the trends in retirement.
According to Hakola (2002), the process of retirement can be separated into three parts; first, a health-induced early retirement; second, voluntary early retirement using the available old age pension plans; and third, mandatory retirement at statutory legalized age. This study eliminates the first route and considers only the last two routes to retirement. The main argument for this is that individuals with severe health issues that reduce their working capacity should not be considered to have opted for voluntary retirement.
Timing of retirement, if well understood, can be important in formulation of policies related to labor supply-unemployment, income poverty and old age welfare. For example, in Nordic countries, knowledge of trends in timing of retirement helped in introduction of early retirement incentives to address unemployment issues in various countries (Bratberg et al., 2004; Ivarsson, 2010; and Brugiavini, 2001).