18 June 2003

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‘Time for words has ended’ - Dalli on pension reform

- give job to MCESD, says Mangion

Finance and Economic Affairs Minister John Dalli yesterday called for a concerted effort from all social partners to find solutions to the looming pensions crisis. His advice, addressing PKF’s ‘Pensions Reform’ seminar, was "to remove the rigidity of the barriers inherent within our different cultures."
The Finance Minister’s speech on the need for commitment, intelligence, understanding, and the removal of barriers "were not sophisms", he reminded his audience. However, it is certain that Government is liable to encounter opposition from certain quarters ready to oppose a radical upheaval of the social system and the public sector.
But Dalli is confident: "The issues we are facing are nothing out of this world. They have solutions. But only if we remove those barriers between us. We have to be responsible and address the facts. It is a flexible environment we are working in, and we must not be rigid."
Dalli said that throughout the coming months, the first indications on the state of the welfare system and projections for future pensions will be released, a hopeful sign of activity coming from the Finance Ministry and the National Welfare Commission.
An average of Lm200 million is expected to be paid in pension contributions this financial year, according to social security Director Edward Gatt. Government expenditure on social welfare is expected to be over Lm300 million in 2003.
Labour Deputy Leader for Parliamentary Affairs, and now Finance Spokesperson for the MLP, Charles Mangion addressed the seminar on the impact of pensions on public expenditure.

Speaking to The Malta Financial and Business Times after the seminar, Mangion said Labour would not be nominating any representative on the National Welfare Commission:
"The NWC is past history now. It will be delivering its last reports and will then be wound up. I think it should be the Malta Council for Economic and Social Development to deal with the problem-solving. By including all social partners and the National Pensioners’ Association, these could relay their proposals to the political parties. I don’t think Government is really essential at that stage of discussion either, since it could influence them throughout the process. Everything will have to be done in the form of a time-frame, naturally."
Mangion pointed his finger at the fiscal situation Malta is current facing and "which is imposing restraints on the present Government and shall also affect future policy makers.’ Succinct in the two preliminary conditions, Labour will be setting in the pensions agenda, Mangion said that before any reforms are carried out: the present level of pension and welfare should not be diminished nominally or in real terms; as well as bringing those below the minimum level of standard up to that standard and subsequently excluding from shouldering the burden of these reforms.
Mangion’s most interesting contribution offered the possibility of a ‘multi-pillar’ approach in the pensions dilemma.
The first pillar, a ‘pay-as-you-go’ pension system, provides for current pensions payments through workers’ and employers’ contributions. The second pillar consists of occupational pension schemes which form the basis for a fully-funded private pensions system. The third pillar is a voluntary arrangement where an individual may opt out to topping up his future income by subscribing to personal insurance policies:
"The second pillar has been the subject of much controversy and debate locally. It entails a change from the ‘defined benefit’ regime to the ‘defined contribution’ method, and from the pay-as-you-go arrangement to full funding.
"The fundamental argument is that by supplementing the first pillar with the second, the pay-as-you-go public pillar becomes fully sustainable because eventually new pensioners will be relying less on the first pillar and more on the other pillars. Advocates of the second pillar argue that workers are more likely to contribute to group pension programmes when retirement benefits are linked clearly to contributions, as against being unrelated to the benefits received in due course.
"This would ensure a regular stream of savings, fostering a stronger base for new productive investment and economic growth. Increased flow of funds into professionally managed pensions funds should lead to increased activity in the financial services sector, in particular to a revamping of the life assurance sector and of fund management business."

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
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