Another wake-up call on pension reform

The European Commission’s White Paper titled An Agenda For Adequate, Safe And Sustainable Pensions once again urges Malta to “take action to ensure the sustainability of the pension system”. The government’s reaction to this statement seems to indicate that the advice given is not really appropriate because it has been taking action since 2004 when it had issued a White Paper on pension reform.

The whole thrust of the Commission’s White Paper is that there is a need or urgency in such reforms. The demographically-induced negative prospects for future pensioners “are further aggravated by the financial and economic crisis. Sluggish economic growth, budget deficits and debt burdens, financial instability and low employment make it harder for all pension systems to deliver on pension promises”.

So the economic slowdown should act as a stimulus for accelerating pension reform rather than a pretext to slow it down. The White Paper goes further and makes concrete recommendations on the direction that EU member states should be taking to speed up pension reform. One such recommendation is that of “supporting longer working lives through measures that enable people to stay longer on the labour market through appropriate health, workplace and employment measures”.

This country’s preventive health care strategy may not be adequate to ensure that older workers remain healthy enough to not only work for longer but also to enjoy life in their old age.

In its specific recommendations, the Commission urges the Maltese government to “accompany the higher statutory retirement age with a comprehensive active ageing strategy”. It is only in the context of a well-defined active ageing strategy that meaningful pension reform can have the chance of being accepted by the majority of people. Yet, despite repeated recommendations by Brussels, the government’s strategy for active ageing remains nebulous. Raising the retirement age and linking it to life expectancy needs to be accompanied by labour market reforms that make working beyond the current retirement age a viable option.

The White Paper has again exposed a record that Malta should not be proud of at all. The average employment rate for older workers (55-64) in Malta is 30.2 per cent – the lowest in the EU – while that in Sweden stands at 70.5 per cent. If the Maltese want social welfare systems that compare to those in Scandinavian countries, they must be prepared to work as long and as hard as the workers there.

Other generic recommendations made by the Commission are those of restricting access to early retirement, linking retirement age to gains in life expectancy and encouraging private retirement savings. So far, little concrete action is being taken to implement these sensible suggestions.

The government’s reaction to the White Paper issued by Brussels sounded rather complacent, even if this was not surprising as the country moves steadily towards an electoral test when no political party dares to ruffle voters’ feathers. The government says “that reforming the pension system had been its priority for over a decade”. Yet, many observers consider the programme of reforms to have stalled and the worry is that not much may be achieved in the coming months.

The introduction of a second mandatory pillar of pension contributions, labour market reforms to encourage older workers to remain in the work place for longer, much-needed preventive health care reform and the definition of a comprehensive active ageing strategy remain unfinished business in this country’s agenda for adequate, safe and sustainable pensions.