Employer Action Code: Act

A new law, the Minimum Retirement Age Act 2012, was passed late last year to increase the minimum retirement age from 55 to 60 for private sector employees. The act takes effect on July 1, 2013.

Key Details

The main provisions of the act state that:

  • An employer may not force an employee to retire due to age before the minimum retirement age of 60, and an employer may be fined up to RM10,000 (US$3,300) if this provision is violated.
  • Any retirement age, if less than 60, in a contract of service or a collective agreement will be deemed void and substituted with the minimum retirement age of 60.
  • The act doesn’t prevent employees from choosing to retire early if the contract of service or collective agreement permits earlier retirement.

Implications for Employers

The dramatic and one-time (versus the typically more gradual) increase in the minimum retirement age reflects government measures to cope with an aging population and bring the retirement age in Malaysia in line with other countries in the region (e.g., Philippines, Singapore and Thailand). It is important to note that:

  • Employers need not necessarily amend their employment contracts and collective agreements to comply with the act as the act automatically supersedes all existing employment contracts and collective agreements.
  • The natural consequence of this change is that the composition of workforces will shift toward older, more experienced employees with longer service. Employers should review their long-term workforce planning and rewards designs to reflect this shift.
  • The mandatory Employee Provident Fund (EPF) has no immediate intention to amend its rules to align its withdrawal age with the act. Employers are required to continue contributing to the EPF on behalf of employees above age 55.