Editorial

The prime minister, Dr Lawrence Gonzi, asked a couple of days before the latest round of local elections about his fellow Marsascala residents' opposition to plans to upgrade the Sant'Antnin waste recycling plant and other issues, admitted that "either we did not explain ourselves enough or we are not being understood".

Dr Gonzi will probably reach the same conclusion when he reads the results of our latest opinion survey on Government's plans to reform the pensions system. For the fact is that just as an upgraded waste recycling plant is necessary, and has to be sited somewhere, so is a radical reform of the pension system, only even more so.

The arguments for an urgent pension reform have been repeated several times. Basically, mainly because of the low birth rate and longer life expectancy, fewer persons are entering the labour market and so the National Insurance contributions by those who work are constantly falling in relative terms, while the number of beneficiaries, and the pensions they receive, are steadily rising. The shortfall between contributions and benefits, primarily pensions, is growing every year.

The first and most obvious solution would be to raise the retirement age from the current 61 to 65, thus ensuring four more years of contributions and four fewer years of pensions. When pensions were first introduced in 1948, life expectancy was around 64 for men and 68 for women; it is now 76 for men and 81 for women, yet the retirement age has remained practically unchanged - its was 60 then (still applicable to women) and it is 61 now.

Yet, as our survey has shown, obvious does not mean acceptable. Even if Dr Gonzi, when unveiling his pension reform plans on March 1, said that the retirement age would be raised to 65 over 20 years, 76.7 per cent of those surveyed are against this.

But unless the pensionable age is raised, those protesting most vigorously against the planned change (which affects those now aged 45 and younger), will find that they will have hardly any pension at all unless something is done now. And even now, with the maximum state pension capped at Lm4,500 a year, pensions are hardly enough to make ends meet, let alone in years to come.

No wonder an increasing number of persons in their 40s and 50s, and even younger, are taking out private pension schemes. They are reasoning, rightly, that unless they can supplement their meagre state pension, they will surely suffer a drop in their quality of life when they retire.

Which brings us to another "negative" survey finding - only 26.3 per cent support the idea of a "second pillar", i.e. a compulsory method of saving to invest in private pension schemes, which will then supplement the guaranteed state pension. Dr Gonzi had not elaborated on the second pillar, except to say that part of the 10 per cent each already contributed by the state, the employer and employee would be invested in such schemes, for the time being, while once the economy improves, an additional percentage of the employees' pay would be levied in order to be invested in the supplementary pension.

Here again, the second pillar would mean obliging many people to save for the future, which is important for economic growth. Savings patterns in Malta have changed in the last decades - while formerly we had one of the highest savings rates in Europe, it is now comparatively very low. Clearly, the culture of saving for the future has to be fostered.

One hopes that the proposed pension reform would, among other things, do away with the privileged pensions enjoyed by former MPs, ministers, Presidents of the Republic, and the Attorney-General. Opposition to this anomaly is quite strong, according to our survey (just over half against, and only 10 per cent in favour, with 39.7 per cent indifferent), although, frankly, one would have expected it to be total.

Our survey also shows widespread support for the idea of "opting out" of the state pension system altogether (as one finds in certain countries), allowing individuals to make their own pension plans and prioritise their savings accordingly. This opt-out should be considered in any pension reform.

But clearly, the government still has much explaining to do regarding its pension reform proposals. After all, our first question in the survey showed that only 35 per cent fully agree that the system needs reforming at all. On this matter, Government and Opposition, as we have repeatedly urged, need to reach a consensus. Failure to tackle the problem now will come to haunt us with a vengeance in 15-20 years' time...