The time is not right for a mandatory second pillar pension, which would raise labour costs for employers and eat away at workers’ disposable income, financial analyst John Cassar White believes.
Malta, he said, was late in addressing its pension system and the introduction of a mandatory second pillar pension to complement the government pension was “inevitable”. But 2011 would not be the right time.
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, he said.
“We wasted a golden opportunity to introduce the second pillar in 2006 when the economy was much better than it is today, when there are certain sectors of the economy that have not yet recovered from the effects of the recession. Are workers and businesses in a position to start paying for this?”
Mr Cassar White believes it is not “socially or economically feasible” to start building this fund now.
In its report, the Pensions Working Group made 45 recommendations, among them that the country could not keep postponing the introduction of the second pillar pension because the present system is becoming increasingly insufficient for future pensioners to enjoy the quality of life they are used to.
The report was commissioned by the Employment Ministry which sought a strategic review of the adequacy, sustainability and social solidarity of the pension system five years since the pension reform undertaken in 2005.
The group warned that further postponement of the second pillar pension “would only exacerbate the issue relating to the adequacy of the average pension replacement rate and, thereby, require, potentially, more drastic measures in the near future”.
The group also suggested the introduction, as from early next year, of a voluntary third-pillar pension which allows the possibility to switch funds to the second pillar once that became available.
The present pay-as-you-go pension is directed at guaranteeing a minimum standard of living. The second pillar introduces the principle of self-help through which workers and employers contribute to private pension schemes to supplement the government pension and enhance their standard of living. The third pillar institutes the principle of choice, whereby money is put aside to complement the pension income.
Even Moses Azzopardi, from the National Association of Pensioners, believes the introduction of the second pillar now would be “ill-timed”. He said that, although it was not something that affected present pensioners but those who would receive it in the future, his association was in favour of having another fund to complement the state pension.
Mr Azzopardi insisted that, before introducing the second pillar, it was better if measures were taken to strengthen the first pillar before taking it to another stage.
Moreover, he said, the second pillar must come along with guarantees that the capital being invested by people is actually guaranteed and state-governed.