House debates raising retirement age to 65

Pensions reform was back before the House of Representatives yesterday with MPs debating the raising of the retirement age to 65.

Social Solidarity Minister Dolores Cristina said the retirement age would be raised in stages. Those born between 1952 and 1955 would retire at 62, those born between 1956 and 1958 would retire at 63, those born between 1959 and 1961 would retire at 64 and younger people would retire at 65.

All those born on or before December 31, 1951 would continue to retire at 61, in the case of men, and 60 in the case of women, but women may opt to retire at 61.

Opposition spokesman Karl Chircop asked why the bill was specifying that the retirement age would be 65. What had led the government to decide on 65 instead of, say, 63? What would the consequences be on the workers, their employers and the public purse? It was clear that this amendment would mean higher revenues for the government through more national insurance payments by the workers.

Furthermore, later on, the Bill included amendments which were more in line with the view of the National Pensioners' Alliance which was of the view that the concept of retirement should not be linked to a particular age but had to be calculated on the basis of the working life. Indeed the Bill said that workers born after January 1, 1962 would qualify for a pension after making 2,080 national insurance contributions once they turned 61.

Dr Chircop said the opposition could not agree with the raising of retirement age until the government gave a clear explanation on all the consequences of this.

He said the reform the government was proposing did not address several existing anomalies in the pensions framework such as problems which existed in the pension of those who served in the British services.

Education and Employment Minister Louis Galea said the Opposition was refusing to acknowledge the need, as from today, to start the process to put the pensions system on a sustainable footing so as to ensure that today's young people had a decent pension when they retired. The opposition was abdicating its responsibilities and burying its head in the sand.

This Bill was about ensuring a sustainable pension for those who today were young. As for anomalies mentioned by Dr Chircop, this was a different issue. These anomalies had been created by the Labour government in the 1970s. Several of them had already been ironed out, particularly with regard to service pensions, and the process would be continued, although it was not easy.

Dr Galea said the retirement age was being raised also in preparation for the introduction of second pillar pensions, an area which was under consideration by the government.

Furthermore, this reform was not just about raising the retirement age. The current system already had an anomaly in that the two-thirds pension was capped and a growing number of people were already seeing that their pension was inadequate. This anomaly was now being addressed and the maximum pensionable income was being raised. People would work longer but get a higher pension.

Dr Chircop denied that the opposition was burying its head in the sand. The MLP agreed that pensions should be adequate and sustainable but the package proposed by the government was not a satisfactory long-term solution. The opposition also felt that the reform was not as urgent as the government was making it out to be, more so as there was actually a surplus between revenue from national insurance contributions and the outlay on pensions. Issues such as economic growth and job creation, which ultimately impacted on pensions, deserved more importance. Health and education were ripe for reform and social security legislation needed a revamp. One also needed to discuss reform in the context of a fertility rate which had decreased but had now stabilised.

Mrs Cristina said the government was not in a panic or in a rush, but the earlier the pension reform started, the easier it would be to bring in change.

Referring to demographic change, Mrs Cristina said there had been a steep decline in the fertility rate since the time of the baby boomers. The issue was now of an aging population. At present, 18 per cent of the population was aged over 60. By 2025 that would rise to 27 per cent with a higher proportion than ever living well into their 80s, hence the pressure on pensions.

Reacting to why the government had opted for a retirement age of 65, Mrs Cristina said this was the retirement age in most EU countries now - in Malta that would only happen in 20 years' time.

Mrs Cristina said there were many people who even at present wanted to continue to work beyond 61 and she was confident that their number would grow in the coming years since active ageing meant most people were relatively healthier by the time they reached retirement age. Still there would an opt-out for retirement at 61 for those workers who would have paid a sufficient number of national insurance contributions.

Mrs Cristina said the Bill included an additional proviso to the definition of 'service pension' so that this pension would not be considered as a second or third pillar pension.

Dr Chircop said this Bill was socially unfair as it favoured those with a large income. They would see a steeper increase in their pension than those with a medium or low income.

Dr Galea said the Bill was based on the principle of the two-thirds pension and inevitably two thirds of a high salary was bigger than two thirds of a smaller one. And those who received a higher salary paid more in national insurance contributions.

In saying that the system was socially unfair was Labour proposing a return to a system where it decided what pension everyone should receive, independently of the salary he used to receive and the national insurance he used to pay? Did Labour want to continue to cap the maximum pensionable income at a low level?