Proposals are hasty, half-baked and socially unjust - opposition

The pension reform as proposed by the government was hasty, half-baked and socially unjust, opposition social security spokesman Karl Chircop said in Parliament yesterday.

He said the Bill would lead to new social taxes, and small and middle income earners would see their social security contributions rise at a steeper pace than their pensions when compared to high earners.

Dr Chircop said Social Solidarity Minister Dolores Cristina at the opening of the debate on this Bill had not discussed its impact on the various sectors of society. Nor had she presented the subject in the context of socio-economic realities.

The Labour Party acknowledged that a pensions problem was brewing, but it was not as acute as the government was making it out to be. True, demographic change was a factor of this brewing problem, but the problem would not start being felt before 2025-2030. And demographics were not the only ingredient of this problem. Other factors that affected the sustainability of pensions and which the government, for obvious reasons, was not discussing included the country's poor economic performance, public debt and debt servicing, the low participation rate in the labour force, which was among the lowest in the EU and, particularly, the extremely low female participation rate. All these were the result of government failure. The government was failing to create work, stimulate growth and encourage women to go to work.

Yet, despite the government's panic, if revenue from national insurance had been directed solely for the payment of contributory pensions, the government in 2004 (latest available figures) would have had a surplus of Lm45 million.

The Prime Minister had admitted, last March 1, that the economy could not at present allow the introduction of a second pillar pension. Still the Bill included provisions for a mandatory second pillar pension and a voluntary third pension. Those provisions, apart from their lack of detail, clearly showed that the government's intention was to introduce these pillars as it thought fit, simply through a legal notice.

This was not serious and many questions needed to be answered.

How would the second pillar pension operate? How would it be funded; would it be a proportion of revenue from national insurance? What impact would that have on other social services? If funding would not come from national insurance, would the people face a new tax? What age brackets would fall under the mandatory second pillar pension? Would those who were excluded be able to voluntarily opt for a second pension? What would become of those who could not afford to contribute to a second pension, especially now that the savings ratio had practically disappeared?

How would those who already had a private pension be affected? Would these people enjoy tax credits? What would be the administrative costs of the second pillar pensions?

Had a study been made on the social impact of mandatory second pensions?

How could the opposition vote in favour of this Bill with so many question marks and the proviso that second pillar pensions could be introduced arbitrarily by the minister?

Clearly this Bill would open the way for new social taxes by the government.

These pensions proposals, Dr Chircop said, were half-baked and aimed at deceiving the people. The government needed to be pressed by the people to come out with its plans for second pillar pensions.

Was this rush a result of pressure from the EU and the rating agencies when the government did not even have an electoral mandate for these reforms?

Dr Chircop said that many proposals made by the Pensions Working Group aimed at creating a social balance were ignored by the government. As a result, the proposals that had made it to this Bill had upset that balance to the detriment of low income people, and they would not achieve the aim of sustainable and adequate pensions.

Dr Chircop asked on what basis the government had decided to raise the retirement age to 65. The MLP, he said, felt the retirement age should not be raised at present, not least because no socio-economic assessment had been made.

It appeared that a small change had been made from the proposals as announced in March, in that people who would have paid social security contributions for 40 years would be able to retire before turning 65 but after turning 61. Indeed the Labour Party had argued that manual workers, who usually started working early in life, should be able to retire before reaching 65.

Dr Chircop said evidence of the new social taxes which this Bill would lead to could be shown from the fact that the changes would benefit high income workers but would be detrimental to middle and low income categories.

Making comparisons between low, middle and high income earners, Dr Chircop said that under the proposed new system low and middle income earners would see their pension increase by just one per cent, but those on a high income would see their pensions climb by 33 per cent. On the other hand, social security contributions would rise by 16.9 per cent for small income workers, 15.5 per cent for those on middle income and 28 per cent for high income earners.

The debate continues this morning.