The pensions time-bomb is ticking very fast

In drafting its pension retirement scheme, in the years to come, Malta will definitely have to find its own tailor-made solution, which will most probably have to include raising the retirement age to 65 for both men and women. Currently the retirement age stands at 61 for males and 60 for females.

Currently, Malta has a two-tired structure with a national minimum pension and the two-thirds pension scheme. The former depends on the number of National Insurance contributions a person makes during his working life, while the latter is incomes related.

There are also a number of ex-servicemen who receive a pension from the British government.

An analysis of the Maltese population according to age groups shows that in six years time Malta will start facing a larger pensionable age group as the post-war baby boomers reach 61 years of age.

The 1995 census revealed that the post-war baby boom took off in 1946 and continued until 1950. Today these people are aged between 51 and 55. In 1995, when the baby boomers were six years younger, the census calculated a total of 30,729 people falling within that age bracket. Although today the amount of people would have certainly dropped because of death related causes the age group still represents the largest segment ever to reach pensionable age at one go.

However, the situation does not get any better beyond that age. During the 1950’s the number of births maintained an all time high. The 1995 census calculated the number of people falling within that category to total 58,236. Today, these people are aged between 41 and 50 years of age. This means that in a span of between six to 20 years time Malta will progressively be facing an increasing pensionable population.

Today’s 10 year olds, considering they start working at the age of 16, will be the ones to start facing off the pension boom phenomenon and the situation does not look all that rosy. In the 1995 census today’s 10 year olds fell within the 0-4 age-bracket. The total amount of children was calculated at 25,780, which represented the lowest birth rate in the previous 25 years.

The current birth rates do not augur too well either. Statistics released by the National Office of Statistics last year show that between 1998 and the year 2000, a total of 13,023 births were registered.

With this situation in hand, meeting the commitments for retirement pensions is definitely the next biggest issue after Malta’s entry or not into the European Union.

The state pension system is financed from current workers’ taxes. The future scenario shows that increasingly Malta will have far less workers doing good for far more pensioners. Unless the future of pensions is not to be undermined, solutions have to be implemented sooner then later.

A look at the pension systems in place in other countries may provide an insight into possible solutions, however as was stated previously Malta will still have to find its own tailor-made solution.

In the UK pensioners are guaranteed a minimum retirement income, which was introduced in 1999 by the Labour government. This is a means tested pension and is linked to the rate of inflation. In addition, UK pensioners have an earnings related pension financed by contributions, similar to the basic pension in Malta. The major difference between the UK and Malta is that employees may contract out of the public earnings-related pension scheme if they are covered by occupational or private pension schemes. Furthermore, the retirement age in the UK stands at 65 for males and 60 for females, which is expected to go up to 65 by 2020.

On the other hand, in Germany there is no public basic pension but means-tested social assistance. However, the income-based pension is compulsory and the scheme is financed by contributions. The retirement age is 65 for males and 63 for females, which is expected to go up to 65 by 2004.

Currently the system links pension increases to the net average wage increases for the previous year. However the trend over recent years has been to link pension increases to the inflation rate thus reducing the rate of increase.