Matthew Xuereb and David Schembri spoke to economists and ordinary people on the proposed pension reforms.

Malta is running out of time to address its pension system and will only be fooling itself if it remains complacent on the subject, according to economist John Cassar White.

He said the pension reform carried out in 2005 was a good basis to move to the next step and introduce the second pillar mandatory pension system rather than argue on whether pensions were sustainable or adequate. The second pillar pension scheme takes a slice of workers' pays and places it into a special pension fund along with a contribution by the employer.

Mr Cassar White was reacting to the EU's Green Paper which proposed to increase retirement age to 67 by 2040 and to 70 by 2060, among other measures to tackle the pensions time bomb.

The Green Paper was released to start a public debate on the future of pension systems to ensure their adequacy and sustainability in the future, in view of the growing ageing population.

The Green Paper -- the first stage of consultation before formal proposals -- warns that the present situation is becoming unsustainable. In the EU, there are four people of working age for every person over 65 but this ratio is expected to drop to just two for every pensioner by 2060 unless systems are overhauled.

Although no countries are mentioned by name in the document, sources close to the European Commission said Malta was one of the member states under the EU executive's radar because the island had a problem with the long-term sustainability of its pension system, which was not deemed adequate for future needs.

Mr Cassar White said: "Malta has received several warnings from the International Monetary Fund and even the European Commission that we need to do something about our pension system. Rather than argue whether they are sustainable or adequate, we need to act to solve the problem soon. The 2005 pension reform is a good basis to continue changing the system."

He said the introduction of the second pillar would affect people's take-home pay and would also have an effect on employers as well as employees.

Asked when Malta should move to introduce it, Mr Cassar White said it should have ideally been introduced in 2005, when the state of the economy was better than it was today.

"The government should express some form of intention in the next budget although next year is not the ideal time to start introducing these changes because it increases costs for employees and may discourage employment. We should introduce it once the economy starts to grow at two or three per cent," he said.

Mr Cassar White said Malta was running out of time to address its present pension system which should be seen in the context of the long-term impact this was having on the country's finances.

Another economist, Karm Farrugia, was of the opinion that the second phase of the pension reform should have been introduced by mid-2008, when the economy was still good.

However, with the country struggling to recover from the effects of the recession and with just two years left of this legislature, now was not the right time to introduce the second pillar.

He said the EU's proposals made a lot of sense and were on the lines of what Malta had been planning since 2005.

"Politically and financially, it doesn't make sense to introduce the second pillar before the country is completely over the effects of the recession and before the economy can withstand the strain of such a measure," he said.

When contacted, Maurice Petrococchino, an expert on pensions, was more concerned about the effect the proposed changes would have on the adequacy of pensions. He said the longer the person worked, the lower his pension would be if it continued to be calculated on the method used today.

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