Pensions: Adequate and Sustainable

What does the term second pillar pension scheme actually mean?
Today there is no second pillar pension scheme. A second pillar pension scheme is a mechanism that allows a person to invest outside of the traditional pensions system - in our case the two-thirds pension - to complement the pension income that one will earn upon retirement.

The second pillar pension scheme can be of a voluntary or mandatory nature. A voluntary second pillar pension scheme implies that it is up to the individuals to decide whether they want to save for their retirement to ensure that they receive an income that gives an enhanced standard of living that compares relatively well to the one enjoyed while working.

A mandatory second pillar pension scheme is one that demands of an individual to invest by saving in such a fund to ensure that they enjoy an enhanced standard of living upon retirement. A mandatory or compulsory second pillar pension scheme is based on the premise of "social good" - in that it forces an individual to save for the future.

A second pillar pension scheme works on the basis that savings are invested and the individual receives a return on the investment made. The return on investment depends on the performance of the market.

It is pertinent to note that the longer the time period of investment the greater the return on investment should be, since it is in accordance with the capital accrued.

Second pillar pension schemes are not new concepts for Malta. Prior to the introduction of the two-thirds pension in 1979 a considerable number of people were members of specific occupational schemes.

I have read about private pension scheme fraud such as those that occurred in the UK. Will the same happen in Malta?
It is true that in the UK there have been cases of fraud on private pensions schemes. In most cases such fraud occurs when an employer uses the money in the pension fund to finance activities that are not related to pensions.

The Special Funds (Regulation) Act 2002 drafted by MFSA takes into account the experience of other countries. The White Paper also recommends that there must be a clear distinction between the pension fund that is created and the employer. This separation will ensure that the employer will not be able to access the pensions fund to transfer the funds accumulated in it for other purposes.