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 PKFs Pensions
Reform seminar, was "to remove the rigidity of the barriers
inherent within our different cultures."
The Finance Ministers 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 dont
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.
Mangions 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
"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."