Pension ‘trap’ for over-37s
2007 reform ‘did not go far enough’
Workers aged 38 and over are likely to be stuck in a pension trap and should be encouraged to invest in existing private retirement schemes, a government-appointed pensions working group has warned.
The group, in its final report reviewing Malta’s pension system, echoes European Commission fears that it is unsustainable.
It stressed the need for Malta to move away from its reliance on a pay-as-you-go state pension system and begin introducing private pension mechanisms, noting the 2007 pension reform “did not go far enough”.
But it also warned that introducing a mandatory private pension – or second pillar pension – in the current economic climate would create “considerable” social and economic shocks.
A second pillar pensionwould require mandatorycontributions of both employers and employees.
The report suggests a decision on second-pillar pensions be made by the end of the year, followed by an eight-year transition period and the introduction of such a system in 2020.
Although presented to the government last March, the working group report was published yesterday, one day after a Commission report warning that Malta faced dire consequences unless it accelerated pension reform.
In a statement released yesterday, the Justice Ministry assured stakeholders that it would not be implementing any of the working group’s recommendations before consulting with them. The working group report, drawn up after consultation with stakeholders, criticised the government for its failure to establish a voluntary third pillar pension structure.
“The group fails to understand why to date – quasi eight years since the launch of the pension reform White Paper – Malta is yet to introduce a Third Pension supported by a strong fiscal framework,” the report noted.
A third pillar pension is essentially a private pension framework backed by fiscal incentives which an individual can opt to contribute to.
The report argued that a well-thought-out third pillar structure would pave the way for the eventual introduction of a second pillar pension and allow people to eventually migrate to secondpillar structures.
It would also allow individuals currently investing in life insurance and other saving policiesto transfer their savings to athird pillar.
A proposed third pillar pension would lock savings until a person’s retirement date and allow an individual to draw down up to 30 per cent as a lump sum, the report says.
It suggested making third pillar pension contributions and lump sum withdrawals tax-free, thereby spurring people to invest in such a scheme.
Several stakeholders, wary of second- and third-pillar pensions, have argued that pension reform should first seek to maximise workforce participation before introducing private pension mechanisms.
Malta has the EU’s lowest percentage of working women, although it has increased significantly over recent years.
But the working group report has dismissed suggestions that aggressive policies aimed at increasing workforce participation would suffice, saying the existing pension system would still “remain unsustainable”.
The working group has also suggested doing away with the mandatory retirement age, thereby encouraging elderly people to continue to work into old age while allowing them to retire at an established state pension age if they wish to do so.
Following pension reform undertaken in 2007, Malta’s official retirement age will gradually rise to 65 by 2026. But further rises are on the cards, the report warns.
It is categorical in this respect, arguing that expecting the pensionable age not to rise any further in the period to 2060 “is neither realistic nor credible” and suggests linking the pensionable age to a longevity index based on healthy life expectancy.
The report also cites research showing that every year added to the pensionable age leads to pension-related expenditure having one per cent less impact on GDP.
Pensions currently take up 21.5 per cent of Malta’s GDP, with that figure projected to rise by some 10 percentage points over the next 50 years.
Removing the statutory retirement age could be done by giving workers a choice between working longer and retiring earlier, the report suggests.
In such a system, those who opt to work longer could be rewarded with higher pensions to the detriment of those opting to retire younger, who would then receive a pension below the pension value set at the official retirement age.
What if I’m over 38?
The news is fairly bleak. According to the report, you fall into a “vulnerable group” category and are likely to receive a lower pension than others.
This is because you’re caught between the 2007 reform process while at the same time unlikely to be given the opportunity to invest in a mandatory second pillar pension (which the working group suggests introducing in 2020).
The report suggests investing in existing retirement schemes or other long-term saving instruments.
Working group recommendations
The 131-page report comes with 51 recommendations. A number ofthese are reiterated from the working group’s original 2010 analysis of the pension system, while some arecompletely new.
Interested readers can access the report online. But here’s a brief rundown of the key recommendations:
• The report suggests establishing two task forces, two committees, one commission and no fewer than five inter-ministerial working groups.
• Amend the child-rearing credit introduced in 2007 to give it apro-natal bias.
• Establish a National Commission by July to look into introducing mandatory second pillar pensions by 2020
• Introduce a voluntary third pillar pension buttressed by significant tax incentives.
• Continue to phase out service pensions.
• Carry out a national skills audit to ascertain what sort of skilled workers are needed in Malta in the years to come.
• Redefine the legal definition of old-age pensions to close a ‘back door’ loophole allowing some to opt out of the labour market at age 60.
• Link pensionable age to a health-sensitive longevity index.
• Enact legal provisions to safeguard the pension rights of divorcing spouses and cohabiting partners.
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28 Comments
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Sarah Grech (Zebbug)
May 31st 2012, 14:45
How do you get out of paying national insurance contribution?
I'm sure if we stopped paying it and took back what we already forked out and manage it ourselves we would do a hell of a better job than this government has managed to do with our contributions.
G Hoare
May 30th 2012, 20:53
Unless people learn more About pension ,it will be a struggle to manage on retierment .
Joe Grech this have nothing to do with social benefits,This problem happend to us in the UK the goverment does not have enough funding .about 15 years ago we were told that who was inwith the age of 35 years old were safe , but those that fell under the age of 35 had to sort themselves out and by law the individual have to sign up for a pension scheme ,Thank God we took out private pension as now in our 50's we just been told that there is no money in the Pot.
CHARLES GRIXTI What are you talking about the reason the pension is not gonna last is because people are living longer .AND for your information pension companies are more trust wordy than you think .Our pension company asked us to cash it in so the uk goverment wouldn,t start using it .
for everybody ,,please do not mix pension and insurance they are totally diffirent .IN MALTA THERE IS NOT YET A PRIVATE PENSION SCHEME the goverment is a bit slow on this subject.. Me and My Husband are going through this trouble at the moment ..
Lino Maniscalco
May 30th 2012, 20:05
After contributing all our lives to pay tax and the NI when we become pensioners we become a burden on the country and by extending the retirement age more people will die before getting their pension while the will be still contributing. We have become victims of auditors playing with financial figures and there is no more respect to humanity. Is it this what we will be voting for?
E. Azzopardi
May 30th 2012, 17:34
Today, we have the report about pensions from the European Commission. What the hell is the government waiting for to implement this? If the country REALLY comes first, then this should have been done A long ago and many other things for that matter.
Joe Grech
May 30th 2012, 16:51
What about stopping the widespread abuse of social benefits?
Surely it is not right that successive administrations do not really tackle this abuse for fear that they will lose VOTES!
That is one huge problem which is crying out for effective tackling! Dolores Cristina please note. (As if!)
Joe Grech
May 30th 2012, 16:47
Could somebody pl. explain: ''Amend the child-rearing credit introduced in 2007 to give it apro-natal bias.''? Thank you.
Mr J. Bonnici
May 30th 2012, 15:52
A private retirement scheme is a promise made by an insurance company to a client who is willing to trust it. You give them money and if they manage to make a profit on your investment, one day they'll give it (or most of it) back to you. If they don't and the company goes bankrupt you're left with nothing.
Charles Grixti
May 30th 2012, 15:35
And another thing. This longevity index is a hoax. People are not living any longer today then they did before. The actuarial figures show that human life after a certain age drops off at a steady and predictable rate. Short of changing the DNA in the human genome, the average actual life span still hovers around the biblical 3 score (a score being a period of twenty years) and ten years.
Adrian P. Cassar
May 30th 2012, 16:17
What a load of crap...life expectancy is constantly rising. It is not difficult at all to get the statistics as nobody can lie about his death. You are so wrong that you don't even know that it is now around 80 years ( that is 4 biblical scores for all those who want to come up with fancy ways of counting).
Charles Grixti
May 31st 2012, 02:42
@Adrian P. Cassar
For your information, your 80 years life expectancy is for a baby born TODAY in a first-world country and not for the aging baby boomers. And that is only a calculation that might not even pan out in real life.
The load of crap comes from the Insurance and Financial Industry who are constantly writing "op-ed' pieces in newspapers and magazines disguised as facts in order to raise panic and to introduce their financial products - Private Pension Schemes. How do I know? Because I worked in the industry so I can tell you with great certainty that the public is being hoodwinked.
Charles Grixti
May 30th 2012, 15:32
Do not forget ladies and gentlemen that the push for Private Retirement Schemes comes from the Banking, Investment and Insurance industries. These schemes can go 'poof' and disappear as they have already done in other countries leaving pensioners pennyless (citing economic downturns, bad investments etc.)
It is not true that Government Pensions are unsustainable, they have created this panic at the behest of the Banks who see piles of cash that they need to get their greedy hands on. In the US for instance, former President Bush Jr. in his first term stated his 'concern' about Social Security (as it is know in the US) but the experts who came out to state that the system is fine and it has adequate funds, both for now and the future where silenced and instead the Banking lobby got the press and the magazine and newspapers articles to scaremonger the public with 'opinon pieces' masquarading as facts, designed to manufacture public consent.
Both Private Pension Schemes and those run by Employers can be stolen and pilfeered - Exxon pensioners lost everything. In Canada, the Pension Scheme run by the RCMP for its officers was being pilfered by the higher ups in the force and even the powerful Union based schemes in the US were being siphoned by the Mafia.
Basically, the Banks, with the collusion of governments see this pile of cash sitting there and devised ways and means to get their hands on them, leaving pension contributors to fend for themselves in their old age.
Mr Michael Debono
May 30th 2012, 12:10
Neville Roberts.
I did not write in connection with self, being already a govt pensionner but for the young generation. Raising the pension age is rather a bad opportunity. In France the age is still standing at 60 years if not below. It is an unjustice to raise the age.. When those at 37 will have reached 60 the population might have doubled hence there will be more contributors not less, women mostly.
Robert Caruana
May 30th 2012, 11:48
I hope that both the PN and the PL will VERY CLEARLY tell us how they intend to deal with this issue related to pensions in their coming electoral manifesto.
With regards to the working group recommendations that we, over 37 year old should invest in current private retirement schemes are they suggesting that we put our hard earned money in schemes that, in most cases, can hardly match the low interest rates that we currently get on our bank deposits? No thanks!
Mr Michael Debono
May 30th 2012, 11:09
Once the pension scheme for those aged 37 and over shows already a lack of justice it is the P.N. government that must take immediate steps to modify the conditions so that in about 23 years time the injustice will be corrected. This not something that will happen to-day or tomorrow but has ample time to redress it. if the P.N. government wants it.
Neville Roberts
May 30th 2012, 11:24
Mr Debono, in 23 years time, if the current trend carries on across Europe, then at 60 years old you will still have at least another 7 working Years !!!
Rocco Camilleri
May 30th 2012, 10:57
Kieku l-Gvern investa l-flus tal-bolla li nhallsu f'deheb zgur kien jghamel il-qlieh u kien ippatti ghall bicca bicca ta' twelied inqas ( fejn qed ikollna min jahdem inqas) . Anke rigward din il-bicca tas-single mothers bi tfal 'unknown fathers' ma nista nifhem sa' kemm dawn ma' gewx ir-rejpjati. Mela sew ahna bit-taxxi taghna nghamlu tajjeb ghalihom, kif ukoll l-ommijiet u nanniet spiccaw jergu jibdew irrabbu. Din x'socjeta hi ???? Jekk il-Gvern se' jkompli ma' jaqbadx il-barri minn qruni inutli noqghodu nithattu u ma' nghamlu xejn. Jista wiehed jifhem kif min qed immexxi ma' jindunax x'qed jigri bil-pensjonijiet li mas-zmien mhux se' jibqu sostennibli, jew qedien hemm biex issahhnu is-siggu biss. Mela sew nghollu l-eta ta' l-irtirar biex zgur hafna ma' jilhquhiex, ghax ikunu ga' stiraw taht xi palma/prinjola u l-ohrajn li jibqa jibilhu l-pilloli . Mela qedien nahsbu li l-hajja tal-bniedem hi bhal xi bicca lakstiku iggebbieda sa' ma tinqata jew !!!!! Meta se' nhallulu ftit spazju l-bniedem biex igawdi ftit il-hajja wara tant hidma u sagrifficcji li jkun ghamel ??? Izzid in-numru fil-familji tghamlu !!! billi theggeg in-nisa johorgu jahdmu !!! jew tghati xi incentiv biex tghinnhom ir-rabbu. Dan kollu qed nghidu ghax sa fejn naf jien iz-zmien isajjru l-bajtar u ma' l-erbejn (kwaranta) jibda jittanta. Tlifna ddirezzjoni nahseb ghax tlifna lil Hallieq.
A.f Ellul
Jun 1st 2012, 06:51
KUll ma qed jigri kollu huwa tort tat-tmexxijja hazina kemm tal-gvernijiet ta Malta kif wkoll tal UE.nibdew min Malta.nehhejna 8 ta Settembru min JUM NAZZJIONALI (Keccejna lill omm ALLA) u issa qedin go disastru,rigward il-UE,din qalet li ma hemmx bzonn l'ALLA ghax ahna maqudin , u hlief disastri ma hawnx go Europa,Jemmnu b"ALLA jew ma jemnux, il-UE saret atejista u malta hlif xjaten fil parlament ma hawnx,dak kollox.issa jekk tridu temmnu,osservaw u xtarru sew.
Joseph Goerge Borg
May 30th 2012, 10:02
And which insurance company would you suggest. Personally I have three private insurances: one paying in euro 500 annually and giving a return profit of circa euro 45 annually, while the other two are going down every year. If I were to withdraw the surrender value and deposit the amount at 2% I will make a larger profit. MFSA please note and no beating about the economic climate.
Patrick Bellia
May 30th 2012, 10:02
jekk jidhlu dawn il private pension schemes, il bolla ha tibqa tithallas xorta?
Peter Shaw
May 30th 2012, 10:26
Ezatt. jien ghandi private retirement scheme (PRS) u nhallas il bolla wkoll. Nippreferi ma nhallas xejn bolla u ninvesti aktar fil PRS.
Patrick Bellia
May 30th 2012, 10:51
mhux sew ghaliex jekk bniedem ikollu l private pension scheme ma ghandux ghalfejn ihallas il bolla wkoll, fl ahhar mill ahhar il bolla ghalfejn inhallsuha? barra minhekk fir rapport stennejt li nara li dawk in nies li ha jkollom jaghmlu uzu min dawn il private pension schemes, ghandom jinghataw il bolla li hallsu sa dik il gurnata biex jinvestuwha f dawn l iskemi. Punt iehor biex thallas dawn il private pension schemes ma jridtx ikollok loans u lanqas xi paga zghira ghax ma narax kif bniedem jista jasal ihallas dan kollu u ghadek ma sammejtx dawl, ilma, medicini, u elf haga ohra.
Gordon Farrugia
May 30th 2012, 09:51
second pillar pension for existing government only means one thing = more taxes
What we need are tax free incentives to invest like what they have in the UK with ISA's and SIPPs - why are we so behind!!!?
Ms Maria Vella
May 30th 2012, 09:49
Oqod hallas it-taxxi ghal single mothers with two or three kids of unknown father......
P Pace Balzan
May 30th 2012, 09:48
The Working group recommendations failed to list the following:
1-Remove all pensions which are payable after 25 years of service ex Police force & Armed force pensions
ie: create a level playing field.
2-Increase the retirement age immediately and not in 10 years time.
3-Reduce the present pension payments and other Security Service payments by 10%.
.
Emmanuel Marmara'
May 30th 2012, 14:45
Hallina Sur Pace, u mur stahba...Tidher li ma taqax taht wahda mill- kategorijji li semmejt...Ghidilna l-ewwel kemm ghandek zmien ???? Jew xi wiehed qatt ma hdimt f'ghomrok ??
Jessica Smith
May 30th 2012, 09:42
The usual crap from those whose only interest is top promote private companies.
Can they tell us how many private insurance companies have gone bust with the pensioners losing their pension and everything they had paid all their lives?
How many times the Government of a country had to intervene so that the pensioners would not end up penniless when insurance companies went bust?
So why should people pay private insurance companies and then the governments have to bail them out with taxpayers money?
This also applies to banks.
STOP THIS PRIVATIZATION MADNESS.
Joe Felice-Pace
May 30th 2012, 13:20
Can Ms Smith name the insurance companies operating in Malta that "went bust". Some years ago there
was one facing problems, but it was salvaged.
Kenneth Cassar
May 30th 2012, 09:39
How about giving us the names of the persons composing the working group, so that I'll know who is suggesting to the government that it robs me?
Please choose the reason of your report below: