Tax cuts studied in pensions review

The government is studying the possibility of introducing tax cuts to promote optional pensions, the Prime Minister said yesterday.

Speaking during an interview broadcast on the Nationalist Party radio, he indicated that the review of the Maltese pension system currently being done by the World Bank would look into the so-called third pillar pension.

He said the country's challenge was not so much to sustain the pension system as to raise the amount paid out, making sure it would be enough to provide a decent quality of life for people retiring in the coming decades.

The Maltese pension is capped at two-thirds of the maximum pensionable income, which equates to around €11,000 - already a drastic cut on the average income of many professionals and skilled workers.

He did point out that the growing ratio of pensioners to workers would make sustaining retirement a bigger challenge, but stressed that the biggest headache was to improve pensions without stifling the economy.

The announcement comes after Dr Gonzi announced last month that the government was embarking on a review of the system, some four years after introducing the first changes to the pension system in 2006.

Dr Gonzi had referred to the introduction of private retirement schemes funded by employers and employees, also known as the second pillar pension, to supplement the present state pension, the first pillar. It is understood that the second pillar scheme would be compulsory.

After almost 10 years of discussion, in 2006 the government had introduced changes to the Social Security Act to start a gradual overhaul of the pension system.

That first phase consisted of a staggered increase in the retirement age from 61 to 65 years and a rise in the regular contribution period to the state pension from 30 to 40 years.

With the Prime Minister's latest announcement, it is looking like both second and third pillars will feature in the coming review.

In their reaction to the announcement that the second pillar was being looked at, business representatives had cautioned about the timing, pointing out that the economy could not sustain more costs at a time when Malta's main markets were still emerging from the international financial crisis.

In a recent consultation document, the EU suggested a unified pension policy which would raise the retirement age across member states to 70 by 2060.