The pensions system, as we know it today, is at a standstill. Those who feel confident that they will get an adequate pension upon their reitrement need to rethink and question the sustainability of pensions.

Demographic trends in Malta indicate that the employee-to-pensioner ratio is on the decline. There are at present four persons who work - and pay National Insurance contributions - for every retired person. Yet, this ratio will fall to 2.5 by the year 2020 and there will be only two working persons for every pensioner by the year 2045.

These figures, indicated in an unofficial report by the National Commission on Welfare Reform, are alarming. The conclusion is simple. There will be less funds from national insurance contributions to finance pensions in the coming years.

The government may either react to the pensions problem or do nothing. But doing nothing will result in the eventual collapse of the system. Yet, this is what is happening. So far, the pensions problem has been sidelined.

There have been various discussions but the country is still waiting for solutions. Pensions need financing. Who should finance these pensions?

In the last few years, employees have seen their NI contributors rise from one-twelfth to nine per cent and then to 10 per cent of their gross annual salary in order to finance pensions. An employee who earns Lm5,000 annually pays Lm500 in NI contributions - besides income tax. This is more than one month's salary.

Therefore, should the burden of NI be increased? People are already questioning the value of their post-retirement pension. Why should they pay more NI when they are uncertain about their own pension?

Yet, as things stand, pensions just cannot be allowed to increase. At one time or another, a drastic decision would have to be taken. Either cut pensions or increase NI - unless we start to face the pensions problem now.

One possibility lies in private pension schemes. The government may reduce its pensions bill, by encouraging people to put money in private plans. This would also give people the right to choose their own pension plan, which, in their opinion, would give them the best return. Fiscal measures, such as tax deductions on income set aside for private pensions would need to be introduced to encourage such schemes.

Another possibilty is to increase retirement age from the present 61 for men and 60 for women. In Belgium, the retirement age is 62 while in Iceland it is 67.

In the last few years there have been debates on whether we should increase the retirement age in Malta to 65. This would result in a partial increase in the employee-to-pensioner ratio as the number of employees would rise while reducing, at the same time, the pension beneficaries.

Whatever the solution, there will be a social price to be paid. The present pensions system is going to be inadequate in the long run. Pensions need to be financed by some sort of income but if workers' NI will be unable to provide for these pensions in the future, then the pensions' equation would need to be restated.

The pensions problem has to be addressed in the light of the more encompassing problems attached with an aging population. A decrease in the number of young people (as a ratio of the total population) will probably result in a decrease in demand for goods and services in the economy since these are the greatest money spenders.

But the reduced demand would then cause a fall in employment, creating a vicious circle. Will there be less people in employment to finance the pensions required by the old?

Clearly, we need to address this issue with clear-cut commitment. It is not easy to assure our veteran population of a secure future without putting the burden on the youths of today. The aging population demands a timely solution to the pensions problem.