Adequate and Sustainable

What are the available solutions to reform our pensions system?
The options are:

¤ No change: which will mean the future pensioners will become poorer in relation to the rest of society.

¤ Increase taxes or the social security contributions paid.

¤ Change the formula of the current PAYG pensions system.

¤ Raise the statutory retirement age.

¤ Increase personal savings.

We consider the first option a non-option. In terms of the other options, a balanced mix of the different solutions is being recommended to provide for a smooth process of change.

What is being proposed?
The proposal for discussion recommends that the current pensions system (called the First Pillar) is supported by a Second and Third Pillar respectively.

The proposed Second Pillar seeks to encourage a person to save for his or her retirement. This can be by means of voluntary or compulsory savings. The Third Pillar is a measure that gives an individual the freedom of choice to invest as much as he or she wishes for his or her retirement. Both the Second Pillar and the Third Pillar are intended to get people to increase savings to enhance their quality of life during retirement.

The proposals also recommend that everybody should continue to pay their social security contribution on the two-thirds pension but proposes a number of changes as to how the pension under the current system is calculated. An important recommendation is that government should make a minimum pension guarantee that is linked to inflation to ensure that no person will become socially excluded.

The retirement age is proposed to increase to 65 for both men and women. No changes are being recommended to increase taxes or the contribution rates of the two-thirds pension.

How is the increase in retirement age to be introduced?
The retirement age today is 61 for men and 60 for women.

Given that men and women are living longer and given that the population will decrease, the proposal is for the retirement age to increase to 65 for both men and women.

The increase to 65 of age is proposed to be staggered as follows:

(i) As from January 1, 2007 women will start retiring at the age of 61.

(ii) From January 1, 2007 the pension age will increase as follows:

55 and over - no change;

52 to 54 - 62;

49 to 51 - 63;

48 and below - 65.