Editorial

Finally, and not a moment too soon, the issue over the sustainability of the island’s pension system is inching back to the top of the national agenda. It has taken repeated warnings by both the International Monetary Fund and the European Commission, not to mention also the Central Bank of Malta and a local think tank, for the government to move, but now that the ball has been set rolling again, it will be highly unwise for the matter to be put on the back burner again.

The government may now want to implement any further stages in the pension reform well ahead of, not close to, the next general election to escape any unfavourable reaction from the public and from employers. A pensions working group is expected to present its recommendations over the introduction of the second and third pillars by the end of this year, after which, according to the 2011 pre-Budget document, the “government will announce its decisions in this regard”. Clearly, however, implementation of the next stage of the reform will depend on the economic circumstances of the time. For, whatever the Labour Party may think, economic circumstances do count when launching reforms involving contributions and costs, such as those, for instance, that the second pillar would entail.

The reference to the Labour Party is being made because its leader, Joseph Muscat, made a somewhat strange comment recently when he was reported criticising the Finance Minister for saying that the electoral promise of cutting income tax would have to wait longer because circumstances had since changed. According to Dr Muscat, the only circumstance that had changed was that the election had passed, meaning, of course, that the Nationalist Party had only promised the tax cut as an election gimmick. All parties promise the earth before a general election, but is the Labour Party saying that all electoral promises ought to be honoured whatever the circumstances?

But to go back to the pension system, only days after the European Union issued a Green Paper warning that the present situation in the EU was becoming unsustainable, a government parliamentary assistant confirmed that the World Bank had been commissioned to study the Maltese pension system to “secure adequacy and retain sustainability”. Particularly interesting is that, according to the Prime Minister, Lawrence Gonzi, the real challenge is not the pensions’ financial sustainability but their adequacy. He made the point when he brought the matter up in Parliament some time ago. Now, when so many warnings have been given over the prospect of the system becoming unsustainable, the Prime Minister’s comment would need to be backed up with facts or, at least, further clarification of what he means exactly.

The Prime Minister repeated the comment a few days ago, when he was reported saying that the country’s challenge was not so much to sustain the pension system as to raise the amount paid out to ensure a decent quality of life. However, only recently, the EU Commission grouped Malta in a list of 15 countries facing the largest sustainability challenges. These countries, it said, needed to carry out “immediate reforms in pension and healthcare expenditure”.

Surely, all would agree with the Prime Minister’s concern over the need to ensure an adequate pension but of greater concern is, first, the sustainability of the system. Moving on to the other pillars of the proposed reform, and working for a much higher employment rate and greater economic growth, would help ensure this.