Broad difference in EU, Maltese pensions strategies

By Kurt Sansone
With most Europeans retiring before the statutory retirement age, increasing employment to ensure pensions are put on a sound financial basis may not be enough according to a joint report issued by the EU Commission and Council of Ministers in March this year.
While Europe strives to tackle the pensions phenomenon the Maltese government has no national strategy in place and, despite the general acceptance on the need to tackle the issue, government has not presented the social partners with a position paper.
Apart from arguing for an increase in the statutory retirement age, which most European countries have already done, the EU report says member states should try to encourage citizens to continue working until the retirement age stipulated by law. Raising the effective retirement age, the average age at which people retire at present, by one year would help cut the expected pension expenditure rise by 0.6 to one per cent of GDP in 2050.
The EU report is based on the individual national strategy reports of the current 15 EU member states and takes into consideration a number of issues including demographic realities, economic development, employment issues and the standard of living of pensioners.
As yet Malta has no national strategy in place for pension reform and, although much of the debate has centred on the increase in the retirement age, other issues are at stake.
Talking to The Malta Financial and Business Times, Dr Paul Debattista president of the Malta Employers’ Association expressed his association’s belief that the retirement age should gradually go up to 65 but the measure must be accompanied by a development and investment plan.
"We must not focus solely on raising the retirement age because if it had to be raised by one year from day one it would mean that 3,000 or so people who retire annually to make way for new employees would still be in employment. We therefore have to ensure the creation of an increased number of jobs over a span of years. Raising the retirement age would have to go hand in hand with a development and investment plan."
Debattista reiterated MEA’s position in favour of increasing the retirement age to 65 in a gradual manner.
"The association believes that with longer life expectancy, raising the retirement age is also of benefit for the fulfilment of the individual that feels she or he can still contribute. However, it has to be determined whether the retirement age should be increased for everybody across the board and how," Debattista said.
He added that other economic issues related to pension reform include the control of government’s fiscal deficit and debt as well as measures to encourage people to take out private retirement plans. "A tax rebate for people paying to have a private retirement pension would encourage the uptake of such schemes," Debattista remarked.
"It is obvious that the problem needs tackling and all concerned parties must get around the table to discuss reforms to make the pensions system sustainable in 8 to 10 years time. The MCESD or other fora have to start discussing the issue."
Debattista said government has not yet presented the constituted bodies with a position paper. He also said he has not yet met Finance Minister John Dalli on the issue.
Asked whether the MEA would support an increase in National Insurance contributions to finance pensions, Debattista did not agree and said these were already high.
Debattista said: "It would mean increased costs for the manufacturing industry in particular."
Old age pensions have a two-tier structure. A basic non-contributory pension subject to a means test and a two-thirds pension based on the number of Social security contributions and the individual’s average wage before retiring.
However, the State offers a host of other social security benefits ranging from widow pensions to disability pensions. Despite collecting national insurance from wage earners and self-employed, the State has no social security fund in place and the money is pooled in the same basket with income tax and other revenue sources that go to finance all government expenditure.