The Ostrich generation shuns pensions’ reform

Foresight is not a virtue that abounds in youth. But it seems that not even older generations understand the implications of not acting on the threat presented by the looming pensions’ problem.

If there is one sentiment that most people nearing retirement share it is the realisation that our working years really fly by- John Cassar White

It does not take much research to conclude that those in their 30s and 40s are not saving enough to avoid a financial crisis in their old age when most of them will have to depend on a state pension for their income. Employers and workers representatives have recently stated that they are not in favour of any mandatory contributions to a second pillar pensions’ scheme.

Employers argue that this will increase the cost of labour and may lead to some businesses having to discharge workers or at least not employ new ones. Trade unions understandably make the point that their members are already hard pressed with declining spending power, and now is certainly not the time to hit their pockets with any mandatory savings schemes.

The political parties argue from the perspective of political pragmatism. The party in government made a big mistake in not introducing the second pillar in 2007 when the economy was arguably in better shape and could absorb the increased cost of labour that such an introduction would entail. Now they are being warned by the IMF and the European Commission that pensions’ reform needs to be tackled with urgency as it can threaten both the long-term sustainability of our public finances and our social cohesion in the coming decades.

The governments’ aspiration to reach political consensus on this issue is no more than wishful thinking. Consensus is not something that a party in opposition will buy into when the current political culture promotes almost tribal partisan division on most public policy issues and when the government seeks consensus only on those issues that cause pain to the electorate. Political pragmatism is a well honed skill that all political parties understandably exploit to their own benefit.

So, as usually happens in such circumstances, individuals are left to cater for their future needs with the risk that they underestimate the real impact that insufficient savings will have on their quality of life in retirement. We currently have a generation of pensioners who were sold the illusion that when they retire they would get a pension equivalent to two-thirds of their latest income only to realise that the infamous capping on the maximum pension effectively limits their income to a level that is barely sufficient for survival.

The bleak prospect of insufficient income for both present and future pensioners is made even bleaker by the fact that the wealth of most Maltese families is often stored in the form of the property that they use as their homes. Embellished homes may satisfy our needs for shelter and status for several decades but they rarely can provide us with the liquidity we may need to supplement our income in retirement.

If there is one sentiment that most people nearing retirement share it is the realisation that our working years really fly by. Before we know it we have to face the prospect of catering for our financial needs from our resources as the state pension does not guarantee the quality of life we dreamt of enjoying. Often it is too late to remedy this lack of foresight on our part made even worse by the high cost of political expediency of past political leaders who failed to take the right decisions at the right time for fear of courting electoral unpopularity.

Prudent workers who are still two or three decades from retirement need to understand the implications of the present situation and start to plan their future retirement from today if they have not already starting doing so. Self-education on financial matters is important even if it has to be supplemented by professional advice. Selecting whom to seek advice from is vital as there are various financial services providers peddling products that cater more for their profits than for the real needs of future pensioners.

One also needs to understand the importance of investing in products that will indeed provide the necessary liquidity that is essential for an effective retirement income portfolio. This may imply tempering our emotional attachment to investing most of our savings in property in the belief that such an investment cannot really go wrong.

Our live-for-today youngsters will one day face the consequences of an ostrich generation that today shuns pensions’ reform.

jcassarwhite@yahoo.com