Pension injustices of the past must be corrected

I would like to add some additional comments to Carmel Mallia’s piece The Inadequacy Of Pension Rates (June 24), which explained in detail not only how and why pensions have lagged behind incomes and living standards but also, incredibly, how the Pensions Working Group (PWG) document, recently presented to Parliament, has totally ignored the plight of current pensioners, while suggesting improvements almost exclusively for future ones, among which is a new Second Pillar pension system.

If the PWG document wasn’t enough insult to pensioners, national statistics show that almost half of them have their pension entitlement reduced to varying degrees due to the injustices created by the pension reform of the late 1970s which not only abolished the previous Malta civil service Second Pillar pension but also negatively affected holders of other Second Pillar pensions, such as British military and public service Second Pillar pensions, and also private company Second Pillar pensions such as those of foreign and local institutions and companies.

Our government may now feel very smug about Greeks having their pensions reduced by 20 per cent. In spite of having no Greek financial tragedy type scenario, almost half of our pensioners have had pension reductions for decades. The PWG document dismissed these injustices to current pensioners as little more than fiction, being apparently unaware that at a conference at Castille in 2008, the Prime Minister recognised that these pensioners had suffered an injustice.

The Nationalist Party in pre-1987 opposition days said it would rectify injustices when in government.

It took the Nationalist Administration 20 years to publicly recognise this pension injustice. However, it claims there are no funds to fully compensate the pensioners who are affected. Our national statistics do not really support this claim of lack of funds for full redress of these injustices and to improve the First Pillar pension system. The 1979 pension reform included an amendment which removed “ring-fencing” of National Insurance (NI) contributions and transferred them to the Consolidated Fund, from which all the welfare state is financed. Substantially less pension benefits are paid out than NI contributions are paid in and surplus contributions having been used to fund other welfare services rather than pensions.

In their 2005 report, the PWG concluded that “to date successive administrations have failed to establish a pension fund. Rather, revenue generated from contributions, which are specifically meant to contribute to one’s pension income, are directed to the Consolidated Fund to finance general government activity.

In truth, successive administrations have failed to manage contributions related to pensions as an investment directed to secure the maximum return to a pension”. In other words, it is not true the government has had no funds to improve the First Pillar pension and to fully compensate for pension injustices created when the previous Second Pillar pension system was abolished.

The government has been using contributions intended for pensions to fund other parts of the welfare state. In plain English, the previous ring-fenced pension fund was “ransacked” in the late 1970s when it was incorporated into the Consolidated Fund, and successive administrations have found it convenient not to re-establish a pension fund ring-fenced from the rest of welfare state finances.

We are not against the setting up of a new Second Pillar pension. However, we insist that before this is contemplated, the injustices resulting from removal of the previous Second Pillar should be conclusively corrected (not in a deplorable piecemeal fashion). We also insist that the First Pillar system should be improved before planning a Second Pillar. We have made submissions to the PWG about how we see improvement of the First Pillar in line with international recommendations. Our suggestions are ultimately based on our national statistics showing that around 20 per cent of our over 65-year-olds are facing poverty levels (poverty levels are based on EU criteria).

We find this state of affairs totally unacceptable at a time when the government is boasting that our economy is one of the best performing in Europe.

Our council represents pensioners of seven of the largest unions in Malta and our opinions and recommendations are based on consensus. I take full responsibility if the above contains any factual inaccuracies.